Sharp slowdown in residential building activity

Confidence among residential main contractors slumped in the first quarter of this year because of a sharp slowdown in residential building activity.

This resulted in overall confidence in the building industry being knocked off the six-year high that it had achieved in the fourth quarter of last year.

The First National Bank (FNB)/Bureau for Economic Research (BER) building confidence index released yesterday revealed overall confidence in the building industry had deteriorated to 55 points on a 100-point scale in the first quarter of this year from 60 in the previous quarter.

John Loos, a property economist at FNB, said yesterday that the results of the first quarter FNB/BER building confidence index survey were "rather disappointing", especially the confidence levels of residential main contractors and residential building activity levels, which ended last year on a relatively solid footing.

However, Loos said despite the decline in overall confidence, the index remained above 50.

He said this suggested that the sector was unable to maintain the momentum of the second half of last year, although it was still growing.

Confidence among residential main contractors slumped by 21 points which, together with a decline in the confidence of non-residential main contractors, resulted in overall main contractor confidence declining to 49 points from 66.

The sharp drop in residential building activity weighed in particular on the confidence of main contractors and manufacturers of building materials.

Loos said: "Confidence was down on the back of a sharp slowdown in residential building activity which, in turn, resulted in lower profitability."

Confidence in half the sectors declined in the first quarter compared with the previous quarter, including among manufacturers of building material, main contractors and quantity surveyors. This was partially offset by higher confidence among retailers of building material, subcontractors and architects.

The confidence of subcontractors improved for the third consecutive quarter, rising to 52 points in the first quarter from 50 in the previous quarter, while that of building material retailers increased to 91 from 74.

Loos said the improved confidence of building retailers was encouraging, given the slowdown in building activity during the quarter.

"With lower inflation, it does seem as though the fortunes of consumers are changing somewhat. It's likely this boosted sales to the informal and DIY markets" he said.

However, the confidence of building material manufacturers declined on the back of poorer domestic demand and domestic orders.

Loos said unlike retailers, manufacturers seemed to have been much harder hit by the slowdown in building activity.

He said the building pipeline had provided mixed results, which added to the uncertainty regarding the outlook for the sector.

Confidence among architects had edged up to 49, while that of quantity surveyors had decreased to 57.

The fieldwork of the first quarter survey was conducted between February 2 and March 3, 2015.

Business Report