FNB/BER Building Confidence Index shows uptick in building activity in 4Q2019



06-12-2019
Read : 14 times
Bizcommunity.com
Source

The FNB/BER Building Confidence Index edged higher to 25 in 4Q2019 after a 20-year low of 22 in 3Q2019. The current level of the index indicates that only one in four respondents are satisfied with prevailing business conditions.

Four sub-sectors registered higher confidence in 4Q2019 namely, hardware retailers (+19), architects (+18), sub-contractors (+12) and main contractors (+8). This was almost entirely offset by a 35-index point drop in building material manufacturer confidence. The confidence of quantity surveyors was unchanged.

At 31, the confidence of main contractors is back to the level recorded in 2Q2019. Underpinning the higher confidence was an uptick in building activity, particularly in the residential sector. The improved activity also lifted profitability. However, there are still a number of concerns within the sector.

Tendering competition up

“While activity and profitability were up, so was tendering competition. Also, the rating of insufficient new demand as a business constraint remained elevated. Therefore, it would be prudent not to read too much into the increase in activity this quarter as it may not be sustained,” cautioned Siphamandla Mkhwanazi, senior economist at FNB.

The confidence of hardware retailers rose to 30 index points in 4Q2019. This is its highest level this year. “Despite downward pressure on consumers’ disposable income, hardware sales, likely DIY related, did well,” said Mkhwanazi.

After gaining 17 index points in 3Q2019, the business confidence of building material manufacturers shed 35 points to register a level of 4 in 4Q2019. Mkhwanazi noted that “while confidence is alarmingly low, it isn’t supported by the underlying indicators. In fact, sales increased noticeably along with a slight improvement in production. It must also be mentioned that confidence in this sub-sector can be volatile from one quarter to another”.

Quantity surveyors especially pessimistic

Activity at the start of the building pipeline gained some momentum for both architects and quantity surveyors. However, while architect confidence increased to 39, that of quantity surveyors remained at a paltry 15. “The results reveal that quantity surveyors are especially pessimistic. Despite actual activity exceeding their expectations in 4Q2019, quantity surveyors are unconvinced that this will continue into 1Q2020. This weighed on confidence in 4Q2019 more than the actual performance,” said Mkhwanazi.

Sub-contractor confidence increased to 33 in 4Q2019, also on the back of higher activity.

In conclusion: The FNB/BER Building Confidence Index regained some ground following the two-decade low recorded in 3Q2019. Activity was also higher across the surveyed sub-sectors although not entirely reflected in overall confidence due to the sharp drop in the confidence of building material manufacturers.

“While it is clear that activity in the building sector improved, from a low base, in 4Q2019, it is too soon to tell if this will 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,” added Mkhwanazi.

Sign up for Free Daily Building and Construction News