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Building|Business
Building|Business
building|business

Too soon to tell if uptick in building confidence will be sustained

4th December 2019

By: Marleny Arnoldi

Deputy Editor Online

     

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The First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index (BCI) rose by three points to 25 in the fourth quarter.

This was after the index receded to a 20-year-low level of 22 in the third quarter.

The BER said in a report on Wednesday that four of the six subsectors in the index had showed higher confidence levels; however, that was almost entirely offset by a 35-index point drop in the confidence of building material manufacturers.

“The underlying indicators suggest a mild improvement in activity, but off a low base. Looking ahead, activity growth could come under pressure again given the relative scarcity of new demand,” it stated.

The four subsectors that registered higher confidence in the fourth quarter were hardware retailers, architects, subcontractors and main contractors. The confidence of quantity surveyors was unchanged at a level of 15.

The confidence of main contractors, in particular, was underpinned by an uptick in building activity in the residential sector. However, despite more activity and profitability for main contractors, there were still concerns within the sector, such as tendering competition.

FNB property economist Siphamandla Mkhwanazi said the rating of insufficient new demand as a business constraint remained elevated and suggested that it would be prudent not to read too much into the increase in activity this quarter, as it may not be sustained.

Meanwhile, Mkhwanazi said that while confidence was alarmingly low for building material manufacturers at a level of four in the fourth quarter, it was not supported by the underlying indicators.

“In fact, sales increased notably along with a slight improvement in production. Additionally, confidence in this subsector could be volatile from one quarter to another.”

He added that while it was clear that activity in the building sector had improved, from a low base, in the fourth quarter, it was too soon to tell if this would be sustained.

“The high level of tendering price competition and the elevated rating of the lack of new building demand as a business constraint, suggest that work is still relatively scarce. This does not even take into account the poor state of the broader economy,” said Mkhwanazi.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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