The First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index has fallen to an all-time low of 4 in the second quarter of this year, following the 13 recorded in the first quarter of the year.
This was underpinned by a sharp fall in activity owing to the nationwide lockdown in April and partial lockdown in May.
The current level of the index indicates that almost all respondents are dissatisfied with prevailing business conditions.
Three subsectors registered lower confidence in the second quarter, namely hardware retailers (-21), subcontractors (-20) and main contractors (-13).
Confidence of architects, quantity surveyors and building material manufacturers was unchanged at very low levels.
Main contractor confidence was at only 2 in the second quarter.
In addition, the subindex measuring building activity (relative to the same quarter in 2019) fell to its lowest level on record.
“With the vast majority of building contractors unable to work during April and May, it is unsurprising that activity tanked,” says FNB senior economist Siphamandla Mkhwanazi.
Looking ahead, based on respondents’ own expectations, activity is likely to contract again in the third quarter relative to a year ago.
Moreover, order books also came under pressure as indicated by an increase in the rating of insufficient new demand as a business constraint.
“While a sharp fall in activity was expected in [the second quarter], the results raise an additional concern relating to the pace of recovery and the magnitude of activity in the [third quarter],” notes Mkhwanazi.
“Cancelled work and postponed tenders, as client firms go under or more aggressively manage cash flow, all argue for a prolonged period of depressed building activity growth. This means that the impact of the Covid-19-related shutdown will linger in this sector for some time. A quick recovery is most unlikely.”
The confidence of both architects and quantity surveyors in the newest survey was unchanged at 12 and 4 respectively.
Activity remained very weak, although broadly in line with the first quarter results.
This confirms the downbeat outlook for the building sector.
“The fact that activity didn’t deteriorate meaningfully – in fact, architect activity improved slightly – was largely as a result of different work arrangements in the case of architects and quantity surveyors who are able to work off site and from home. It also highlights just how unpromising the building pipeline already was in the [first quarter],” says Mkhwanazi.
Retailers of hardware registered the biggest fall in confidence, from 24 to 3 in the second quarter survey
As could be expected, sales volumes fell dramatically in the quarter.
“The outlook for hardware retailers is bleak,” says Mkhwanazi.
“Not only are they affected by slowing building demand, but falling consumer income is set to weigh heavily on this sector, at least for the remainder of this year.”
For similar reasons and as was the case in the first quarter, further up the supply chain, not a single building material manufacturer was satisfied with business conditions in the second quarter.
Subcontractor confidence also fell to zero, from 20 in the first quarter.
Of concern is that this quarter’s survey results point to continued weak activity in the next quarter.
“While we may see a rebound on a quarterly basis in [the third quarter] as a result of the gradual reopening of the economy, building demand, and therefore activity, is still going to be severely constrained over the short term,” says Mkhwanazi.
“Even over the medium term, it is unclear that a full recovery is on the cards given how much damage the Covid-19-related lockdown has dealt to the property sector and how different behaviour, both individuals and business, may be in future.”