The First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index fell by five points to 34 in the second quarter, with the current level of the index indicating that more than 65% of respondents were dissatisfied with prevailing business conditions.
In addition, all of the six subsectors surveyed registered lower confidence.
The largest fall in confidence, for the second consecutive quarter, was registered by retail merchants, with a drop of nine index points to 30. The fall in confidence was owing to a sharp deterioration in sales and consequently, profitability.
“The marked slowdown in hardware sales seems to point to the end of the do-it-yourself boom, which boosted the building and retail sectors since the latter part of 2014,” said FNB property economist John Loos.
The index measuring the confidence of main contractors shed five points to end the quarter at 38 – the lowest level of the index since the first quarter of 2013; however, building activity was marginally better than in the first quarter of the year.
There was also a distinct difference in the performance of the residential and nonresidential sectors. While the confidence of both residential and nonresidential contractors edged lower in the second quarter, residential building activity rebounded.
In contrast, the slowdown in nonresidential activity reported in the first quarter intensified.
“The difference in performance of residential and nonresidential building activity confirms our view that the nonresidential market is under significant pressure, while there is still some life in the residential market,” Loos said.
He added that there was a stark difference in the performance on a provincial basis, noting that the Western Cape fared significantly better than the rest of the country, both in terms of confidence and building activity during the quarter.
“This is likely owing to increasing inward migration to the Western Cape by residents from other provinces,” he said, adding that more enthusiastic tendering competition, along with a deterioration in overall profitability during the quarter, resulted in the fall in confidence.
Meanwhile, business confidence levels among manufacturers of building materials edged lower to 18 index points in the second quarter; however, the underlying data suggested a significant improvement in domestic sales and production in the quarter.
As a result of lower activity, the confidence of architects and quantity surveyors fell to 42 and 35 index points respectively in the second quarter. For quantity surveyors, this marked the lowest level since the fourth quarter of 2012.
“These figures suggest that the marginal improvement in building activity registered during the quarter may not be sustained over the short to medium term,” commented Loos.
Subcontractor confidence was also three index points lower at 40.
Although confidence was lower during the quarter, higher activity by residential contractors and increased sales and production by manufacturers of building materials suggested that activity in the sector was in slightly better shape in the second quarter than at the start of the year.
However, the outlook was marred by a moderation in activity at the start of the building pipeline and persistently poor growth in nonresidential building activity.
In addition, the weak retail environment suggested that a key support to the sector in 2015 was no longer there.
“Developments in the broader economy, such as higher interest rates, rising household indebtedness and soft domestic demand, will also weigh on the building sector,” Loos stated.