Building confidence index gains some traction after Covid-19 slippage

2nd December 2020

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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The First National Bank/Bureau for Economic Research Building Confidence Index gained 20 points to 24 in the third quarter, with a further rise to 29 being registered thus far in the fourth quarter – both reaching their best levels since the end of 2018, respectively.

However, despite the rise in confidence, the current level of the index indicates that more than 70% of respondents are dissatisfied with prevailing business conditions.

Also, the sectors covering other fields also showed signs of movement during the third quarter, with architects' confidence increasing by 16, subcontractors by 14, hardware retailers by nine and main contractors by seven, while confidence among quantity surveyors decreased by four and building material manufacturers by nine.

FNB senior economist Siphamandla Mkhwanazi says the main contractor confidence registered its highest level this year of 21.

“The better sentiment this quarter was supported by improved activity. Although still lower than a year ago, the survey suggests that the rate of decline was less than in the third quarter.” Also lifting confidence was an increase in profitability.

The index reveals that there was a clear diversion between confidence and activity among residential builders compared with the experience of non-residential builders.

The index measuring activity in the residential sector improved noticeably, whereas in the non-residential sector, activity fell back to the level registered in the second quarter, which is in line for when Covid-19 restrictions on activity were the strictest.

As such, confidence also moved in different directions. However, the index shows that most of the uptick in the residential activity came from residential subcontractors.

“There still seems to be some benefit to the residential sector owing to additions and alterations resulting from people working from home, but also because people are now spending more time at home in general,” he says.

Further, the increase in mortgage activity in certain segments of the property market is also lifting activity relating to renovations. “It must be emphasised, however, that these are usually small projects of lower value,” notes Mkhwanazi.

For similar reasons to the residential subcontractor segment, hardware retail sales rose significantly in the fourth quarter, pushing hardware retailer confidence to its highest level since 2015, of 64.

“Consumers who have managed to hold on to their jobs and have not received a salary cut have more disposable income than before given the lower interest rate environment and savings related to working from home. Some of this money seems to have been channelled into hardware sales,” he suggests.

In contrast, building material manufacturer confidence slipped to 31 in the fourth quarter, despite a significant increase in domestic sales to their best level since the first quarter of 2017 and on the back of retailer demand. In terms of production, it increased to its best level since the first quarter of 2018.

“Although production is higher, an increasing number of builders have indicated that the inadequate supply of building materials is constraining business operations,” Mkhwanazi points out.

Activity at the start of the building pipeline remained subdued. Despite this, architect confidence increased to 30 in the fourth quarter. The confidence of quantity surveyors, however, fell to zero.

“Whatever optimism we are experiencing in the residential building and hardware sector must be tempered by the continued weakness in the building pipeline/incoming activity,” he cautions.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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