Fragile Building Confidence Takes a Further Knock

The latest First National Bank Building Confidence Index (FNB BCI) released recently records a grim picture of the declining confidence levels during the second quarter of 2010. This dropped from a value of 30 to 24.

John Loos, FNB Property Specialist, indicated that the business confidence index of non-residential, which includes commercial and industrial property sector, dropped from an index value of 26 in the first quarter in 2010 to 18 in the second quarter.

Growth in building activity underperformed expectations during the second quarter of 2010. The demand for new work deteriorated and 89 percent of the respondents in the survey indicated that they regarded the low demand for building work as a major constraint impacting on the viability of their business enterprises and in some instances necessitated the retrenchment of labour.

The latest survey was conducted for the FNB BCI by the Bureau for Economic Research (BER) at the University of Stellenbosch (US) during the period of 3 May and 1 June 2010. The index is compiled quarterly and covers building, manufacturing, retail, and the Quantity Surveying as well as Architectural Professions.

The following declines were recorded:

• Quantity Surveyors (-2)
• Building Contractors (-6)
• Sub- Contractors(-2)
• Manufacturers of building materials (-2)
• Retailers of building materials (-24)
• In the case of Architects, a small increase (+1) was recorded.

According to FNB indices the business confidence of the residential building industry languishes in a firm recessionary mode at present. Notwithstanding the reduction in the morgage rate of 550 basis points but due to the cautiousness of consumers in an uncertain global environment, the purchase of existing homes is cheaper than building new ones.

During the first quarter of 2010, some 47% of the respondents in the survey indicated a more stringent tendering environment but the corresponding figure rose to 59 % in the second quarter of 2010. The result is that margins remained under severe pressure, negatively affecting the overall profitability of the responding enterprises.

Non- residential building activity is likely to remain under pressure for some time ahead but as far as the outlook for the third quarter of 2010 was concerned, some of the respondents expected a slight improvement in the overall business environment and growth in building activity.

Pieter Rautenbach