Building Recovery Lost Some Steam In Q3, But Overall Momentum Is Up

The FNB/BER building confidence index increased by 7 index points to register a value of 48 in 3Q2013, from 41 last quarter. This is the highest level of the index in 5 years.


FNB Composite Building Confidence Index – Source: BER, Stellenbosch University.

The current level indicates that there is an even split between those respondents satisfied with prevailing business conditions and those that are not.

Compared to 2Q2013, the following changes in confidence levels took place: manufacturers of building materials (+25), retailers of building materials (+10), quantity surveyors (+7), architects (+4), main contractors (-2) and subcontractors (-2).

After jumping by 15 index points to 45 in 2Q2013, the confidence of main contractors declined slightly to 43 in 3Q2013. However, the growth in building activity slowed down considerably compared to 2Q2013. “This does not mean that the building recovery has stalled. The underlying trend is up. However, it seems that growth was more subdued in 3Q2013, following a relatively good Q2” said Sizwe Nxedlana, chief economist at FNB.

The slowdown in activity was more pronounced in the non-residential sector than in the residential sector. In fact, overall, the residential sector seems to have outperformed the non-residential sector in 3Q2013.

Similarly, activity in the sub-contractor segment also eased. This resulted in a slight decline in confidence from 41 to 39 index points in 3Q2013.

Even though main contractor (and to a lesser extent sub-contractor) activity slowed during the quarter, other smaller, informal projects continued to support the sector. This is reflected in the confidence of building material retailers, which rose from 46 to 56 in 3Q2013. The rebound in confidence was largely due to a marked uptick in sales and improved profitability.

The improvement in the retail segment also filtered through to manufacturers of building materials. A sharp rise in domestic sales and domestic sales orders helped lift confidence of building material manufacturers from 27 to 56 points in 3Q2013, its highest level since early 2008. “The continued demand from retailers and the anticipation of a more sustained recovery in the building sector seems to have boosted the confidence of building material manufacturers” said Nxedlana.

Confidence of quantity surveyors and architects also improved, to 50 and 46 index points respectively, in 3Q2013. However, in terms of activity, the picture was mixed. Work by quantity surveyors increased while that of architects slipped back, as with main contractors, to 1Q2013 levels.

Despite the rise in confidence in 3Q2013, other indicators, especially main contractor activity, suggest that the growth momentum in the building sector returned to the more subdued pace seen in 1Q2013 and was mainly based on smaller, informal projects.

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