Current economic outlook for the building industry

According to an analysis in the latest FNB Building Confidence Index which measures the business confidence of major enterprises, the built environment practitioners and suppliers involved in the confines of the construction sector that the downward spiral in the residential building sector was probably close to bottoming-out but the downswing in the non-residential sector was likely to continue.

The analysis is based on the survey compiled quarterly by the Bureau of Economic Research at the University of Stellenbosch.  The latest survey results showed a slight increase in the index to 32 in the third quarter of 2009 from 30 in the previous quarter.

Three quarters of the respondents indicated that growth in work loads was lower than a year ago and 76% reported that insufficient demand for building work was a constraint on their business operations.

Some 84% of the respondents reported lower profits margins than in the same quarter a year ago resulting in the tendering environment still being tight and highly competitive.

Figures released by Statistics S.A. put the real value of plans for new residential buildings approved from January to July 2009 at R9.92 billion compared with R18.89 billion for the same period during 2008 – a staggering 47% lower.

Despite lower interest rates the residential sector would remain under severe pressure for a period of time.  For the first seven months of 2009 the number of residential plans approved dropped significantly.  The number of new housing units for which plans were approved dropped by almost 74% year on year and 24.3% month on month to 3222 units in July – the lowest since the end of 1993.

Recovery in this sector of the industry is therefore likely to be slow and from a very low base.

Pieter Rautenbach | Projects Facilitator

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