Grim outlook as SA building confidence dips below 50

Cape Town - The FNB/BER Building Confidence Index has fallen for the third straight quarter to 44 points, from 53 in the second quarter of 2015, according to a statement released on Thursday.

Compared to the end of last year, building confidence is 16 points lower in total. The current level indicates that close to 60% of respondents are dissatisfied with prevailing business conditions.

The fall in building confidence was led by a sharp drop in the confidence of manufacturers and retailers of hardware, on the back of weaker sales and profitability.

Main contractor confidence lost 3 index points to 45 during the quarter. However, the lower confidence was not supported by the underlying indices, particularly building activity and profitability.

A slight improvement in building activity came mainly from the non-residential market, while activity in the residential market stabilised.

“The fundamentals do not support the uptick in non-residential building activity,” said John Loos, property economist for FNB.

“Office vacancy rates remain high and the demand for retail space is dwindling as consumer spending comes under increased pressure. This makes it difficult to see a sustained improvement in non-residential building activity.”

Hardware retailers recorded the biggest fall in confidence. After rising to 91 in the first quarter, the confidence of hardware retailers dropped to 66 in the second and 37 in the third quarter.

“Hardware retailers have far outperformed other retailers since the start of the year. However, it seems the weak consumer environment is also starting to affect hardware retailers,” said Loos. “It is unlikely that hardware retail sales will continue to grow at the same pace in the second half of 2015 as it did in the first half.”

The fall in confidence of retailers and manufacturers of building material had more to do with slowing domestic demand in general than further weakness in the building sector, which is confirmed by the stabilisation of building activity of main contractors.

Overall, growth in the building sector remained flat and the outlook for the sector remains rather downbeat. Slowing activity among architects and quantity surveyors suggests that the building pipeline is becoming smaller.