FNB/BER building confidence index reaches highest level since Q4 2007

Posted On Wednesday, 19 March 2014 22:13 Published by
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Confidence levels in the construction and building industry rise to 52 points in the first quarter of 2014 from 48 in the fourth quarter of 2013. 

John Loos

The first time the FNB/BER building confidence index has been above 50 since the fourth quarter of 2007.

However‚ FNB Property economist John Loos said despite the rise in confidence‚ overall activity was largely unchanged‚ with slower growth in residential building being offset by continued growth in nonresidential building work.

The number of new housing units for which building plans were approved increased by 1.3% to 50‚484 units in 2013‚ after a decline of 5.7% in 2012.

The construction phase of new housing recorded a drop of 3.7% to 41‚398 units built in 2013 from a total of 42‚978 units constructed in the preceding year.

The index also showed that profitability continued to disappoint‚ deteriorating across most of the subsectors in the quarter.

However‚ a surprise increase in architect and quantity surveyor activity suggested that the recovery in the building sector had not yet run out of steam.

The current level indicates that a small majority of respondents are satisfied with prevailing business conditions.

Absa Home Loans property analyst Jacques du Toit said the higher confidence levels in the FNB/BER index made sense as demand for housing continued to climb‚ despite the low level of actual construction activity.

"Building statistics show low activity for the past three to four years‚ with residential house prices increasing only in single digits‚" Mr du Toit said.

But demand‚ notably in metropolitan areas‚ was in oversupply mode. "The higher confidence levels could be indicative of increased activity levels in future as demand rises but supply remains low‚" he said.

Main contractor confidence in the FNB/BER index rose marginally‚ from 47 to 49 index points during the quarter.

Mr Loos said the survey results showed nonresidential building activity accelerated "nicely" during the quarter‚ while that of the residential sector slowed.

"This probably reflects increased pressure on households amid high levels of debt and the higher interest rate environment."

Compared with the fourth quarter of 2013‚ the confidence levels among quantity surveyors increased by 18 points and among architects by 15 points.

Among subcontractors‚ confidence increased by a more marginal four points and among main contractors by only two points.

Confidence among the manufactures of building materials fell five points‚ with the worst reading recorded by retailers of building materials‚ which fell seven points.

After reaching a more than five-year high at the end of last year‚ the business confidence of building material retailers in the FNB/BER survey fell to 59 index points in the first quarter of 2014.

Confidence moved lower despite a rise in sales and selling prices. "The fall in confidence of retailers is not really supported by the underlying data.

The best explanation seems to be that they do not expect the improvement in the first quarter of 2014 to continue into the next quarter‚" said Mr Loos.

The confidence of building material manufacturers was also down‚ from 58 in the fourth quarter of 2013 to 53 index points.

In contrast‚ the confidence of architects and quantity surveyors rose notably. Both sectors saw confidence edge above 50 to 52 and 53 index points‚ respectively.

The rise in confidence was well supported by increased activity across the broad spectrum of project types.

This comes as a welcome surprise following the fall in activity and confidence last quarter.

"This does not mean that all these projects will eventually be built‚" said Mr Loos.

However‚ Mr du Toit said the higher confidence among architects and quantity surveyors supported the expected revival in construction activities. "It could be an early indication that building activities are set to increase."

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