Optimism rises with house building activity

A sharp rise in residential building activity has resulted in improved confidence in the industry in the third quarter.

The FNB/Bureau for Economic Research (BER) building confidence index released yesterday revealed that confidence in the industry had improved to 45 index points on a 100-point scale in the third quarter.

The index slumped 11 points to 41 in the second quarter after breaching the key 50-point mark in the first quarter.

John Loos, a property economist at FNB, said yesterday that although the index remained below the key 50 mark, it did suggest that conditions in the building sector had improved.

Loos added that the current index indicated that slightly more than half of the respondents were dissatisfied with prevailing business conditions.

He said the sector seemed to have a second wind, led by relatively strong growth in residential building activity, which had boosted the rest of the value chain.

But, he pointed out, growth in residential building activity was long overdue as estate agent surveys had indicated supply shortages in a significant number of areas.

However, Loos was less excited about the near-term prospects of the non-residential building industry.

'Retail sales growth has slowed significantly in recent times, restricting the scope for further new retail development, while the office property sector has had elevated vacancy rates for some time already,' he said.

Tumi Dlamini, the executive director of Master Builders South Africa (MBSA), welcomed the slightly more positive outlook but indicated MBSA was still extremely concerned about the 'pedestrian rate of building activities throughout the country' and the effects on job creation.

The survey revealed that the confidence of main contractors rose by 8 index points to 53 points, its highest level since the first quarter, primarily because of a marked increase in residential contractor confidence on the back of a sharp rise in building activity.

Loos said this was encouraging because the residential sector had been under significant pressure since the housing boom ended in the mid-2000s.

However, building activity in the non-residential market remained largely unchanged.

Loos added that the rise in residential contractor activity had also resulted in improvements along the remainder of the building value chain.

A sharp rebound in sales of building materials saw the confidence of retailers rise by 18 index points to an almost sixyear high at 74 index points while an increase in production and domestic sales had also lifted the confidence of manufacturers of building material by four index points.

The confidence of subcontractors improved by four index points in the third quarter but was led by the nonresidential market.

Loos said this was a lagging sector and it was no surprise that the rise in non-residential building activity registered a few quarters ago was now starting to filter through to non-residential subcontractors.

'Furthermore, we are likely to see the residential subcontractor market improve in subsequent quarters based on the third-quarter survey results.'

The building pipeline continued to produce mixed results, with the confidence of architects marginally higher despite weaker activity while that of quantity surveyors declined by 8 index points to 37 despite a rise in activity.

Business Report