Building Confidence Index moves lower in Q4

* The FNB/BER Building Confidence Index shed 4 points to register a level
of 31 in 4Q2017.

* Four of the six sub-sectors reported lower confidence in the quarter, led by building material manufacturers.

* Despite the fall in confidence, on balance, activity was broadly unchanged compared to 3Q2017, albeit still weak.

* The survey suggests further weakness in building activity growth going into 2018, especially in the non-residential sector.
The FNB/BER Building Confidence Index fell to 31 in 4Q2017, from 35 in 3Q2017.

This marks the lowest confidence since 3Q2012.
At the current level, the index indicates that the majority (nearly 70 per cent) of respondents are dissatisfied with prevailing business conditions.

The confidence of main contractors slipped to 34 in 4Q2017, from 44 in 3Q2017. However, according to John Loos, Property economist at FNB, sentiment between residential and non-residential main contractors continues to be starkly different. In fact, this contrast was even more pronounced this quarter.

While confidence of residential main contractors declined to 43 in 4Q2017, that of non-residential main contractors fell to 11. Moreover, building activity for non-residential contractors deteriorated, while that of residential contractors improved somewhat. High vacancy rates across a range of non- residential sub-sectors as well as weak underlying economic activity seem to be taking a major toll on the non-residential building sector. In contrast, residential contractors saw activity growth edge higher, close to its long-term average, Loos added.

After rising by 29 index points in 3Q2017, the confidence of building material manufacturers fell 21 points to 16 in 4Q2017. A decline in domestic sales and sales orders growth weighed on confidence in the quarter, whereas from an export perspective the sector fared reasonably well. This reinforces the idea that the domestic building sector remains under pressure, commented Loos.

Confidence of architects and quantity surveyors fell to 25 and 38 index points respectively, thereby also weighing on overall sentiment in the building sector. In the case of architects, this marks the lowest confidence since 1Q2012.

Underlying activity remained poor during the quarter prompting the lower confidence. Last quarter, the survey results showed a sharp decline in activity at the start of the building pipeline. This continued into the fourth quarter and bodes ill for the outlook for the building sector, especially the already underperforming non-residential market,” said Loos.

In contrast, building sub-contractor business confidence gained 10 points to register an index level of 47. The improved sentiment is largely due to increased work among non-residential sub-contractors. According to Loos “Much of the work is likely coming from additions and alterations rather than work related to new buildings”.

Hardware retailer confidence also rose in the quarter to 28 index points, from 18 previously. However, despite the increase in the index, the majority of respondents are still dissatisfied with prevailing business conditions.

In conclusion: A further weakening in building activity in the non-residential sector, along with a slowdown in activity at the start of the building pipeline weighed on confidence during the quarter. In contrast, residential contractor building activity seems to have returned to “normal” following the fall in activity reported in 3Q2017. On balance, however, growth in the sector likely slowed further in 4Q2017. Regarding the outlook, Loos stated that “The subdued prospects for the non-residential market cloud the outlook for the overall building sector. Even if we have some sort of recovery in the general economy, it will take some time before it is reflected in new non-residential building activity simply because the existing oversupply first needs to be absorbed”.

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