Slight Gain In Building Confidence, But Deeper Decline In Civils – FNB/BER

Slight Gain In Building Confidence, But Deeper Decline In Civils – FNB/BER

The FNB/BER Building Confidence Index registered a gain of 4 points to 29 in 2Q2019, whilst the Civil Confidence Index remained close to an all-time low with a further – and deeper – decline in construction activity.

Although the FNB/BER Building Confidence Index dropped to an eight-year low of 25 in 1Q2019, the index rose 4 points to 29 in 2Q2019.

However, even with the improvement, the current level of the index indicates that more than 70 per cent of respondents are dissatisfied with prevailing business conditions.

During the quarter, four of the six sub-sectors registered higher confidence led by subcontractors. The confidence of architects was unchanged while that of quantity surveyors was lower.

The confidence of main contractors regained some of the losses registered in 1Q2019, rising to 30 from 23. “The somewhat higher confidence among main contractors was supported by a mild improvement in building activity. That said, activity still remains very weak,” said Siphamandla Mkhwanazi, Property Economist at FNB.

Sub-contractor activity growth also remained weak. Nonetheless, confidence doubled to 43, from 21 in 1Q2019. According to Mkhwanazi, “we could see confidence retreat once more next quarter as there is nothing in this quarter’s survey data to support their higher optimism”. Sub-contractors are later in the building pipeline than main contractors and it would be unusual, should that have been the case, to see the sub-contractor market improve without having first seen better conditions among main contractors.

Activity among quantity surveyors was also better. However, confidence dived to 16 index points in 2Q2019. “There are some signs that work for quantity surveyors increased, but profit margins became thinner. This likely weighed on confidence,” said Mkhwanazi.

The confidence of manufacturers of building material and hardware retailers was recorded at 22 and 24 index points respectively. In both cases activity (production for manufacturers and sales for retailers) deteriorated. This is in line with the still poor growth in building activity.

Overall, on an annual basis growth in building activity likely remained as weak as in 1Q2019.

In summary: “While building confidence is marginally higher, it still suggests that the vast majority of firms in the building sector are dissatisfied with current business conditions.

Moreover, activity among main and sub-contractors, which makes up the biggest share of sector activity, remains poor,” remarked Mkhwanazi.

However, the one green shoot is that architects are more or less as busy as usual (i.e. activity growth is close to its long-term average). “As we see it, a sustained improvement in the building sector will only occur if the property cycle moves away from the current environment of subdued growth in house prices and rentals (in the case of residential buildings) and high office and shopping centre vacancy rates and low rental return on investment (in the case of the non-residential sector),” Mkhwanazi argued.

On The State Of The Civil Construction Industry Mkhwanazi noted a further decline in civil construction activity 2Q2019 as the FNB/BER Civil Confidence Index gained one point following the all-time low of 10 registered in 1Q2019.

The current index level means that close to ninety per cent of respondents are dissatisfied with prevailing business conditions.

It’s disheartening that confidence has been so low for such a prolonged period. However, the reasons for the downbeat sentiment are clear from the underlying data. These include persistently weak activity growth and paper-thin profit margins,” said Mkhwanazi.

Statistics South Africa reported a 0.9% annual decline in the real value of construction works in 1Q2019. “The 2Q2019 survey revealed that the index measuring activity growth registered its worst level since 2010. This means that the slowdown in construction activity is expected to continue, and most likely intensify, in 2Q2019.” added Mkhwanazi.

In addition to the current weak demand, new demand is not really forthcoming. Mkhwanazi pointed out that “88% of respondents consider insufficient demand for new construction work, a proxy for order books, to be a constraint on their business operations

In summary: The FNB/BER Civil Confidence Index increased to 11, from 10 in 1Q2019. The continued low confidence is justified given the persistent decline in activity and the downbeat outlook.

The performance of the sector over the next few months will be determined by how the current fiscal constraints are addressed and whether or not this leaves room for increased public infrastructure spending. For now, the sense is that the scope for this is limited. However, there is still an opportunity for greater (policy) certainty in the mining and renewable energy sectors to boost private sector fixed investment. This could offset (in part) the effect of lower public sector capital expenditure,” said Mkhawanazi.

Building sector confidence falls further in 1Q2019

Building sector confidence falls further in 1Q2019

Confidence in South Africa’s building sector fell in the first quarter of 2019, with the building confidence index sponsored and compiled by First National Bank and the Bureau for Economic Research (FNB/BER) losing seven points to an almost eight-year low of 25.

The current level of the index indicated that 75 percent of respondents were dissatisfied with prevailing business conditions, FNB and the BER said.

Building activity growth has been contracting for the past few quarters, so such a sharp decline – on top of that seen in previous quarters – was really detrimental for confidence,” FNB property economist Siphamandla Mkhwanazi said.

After staying above 40 during the second half of 2018, the confidence of manufacturers of building materials fell by 24 points to 19 in the first three months of this year, marking the single biggest decline in four years.

The only positive from this quarter’s survey results was an uptick in confidence among architects to 36, from 26 in Q4 2018.

“Overall, the building pipeline suggests that building activity growth will continue to be under pressure in the short to medium term,” Mkhwanazi said.

The FNB/BER building confidence index can vary between zero, indicating an extreme lack of confidence and 100, indicating extreme confidence.

It reveals the percentage of respondents that are satisfied with prevailing business conditions in ix sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.

It covers the whole pipeline from planning to the actual erection of buildings by main contractors and sub-contractors. The fieldwork for the first quarter survey was conducted between January 28 and March 4.

Source: African News Agency (ANA)

In addition:

A broad-based weakening in activity pushes confidence down to worrying lows

The RMB/BER Business Confidence Index (BCI) declined by a further three points to 28 in the first quarter of 2019. This is the lowest level since the 27 index points recorded in the second quarter of 2017, and before that, the deep recession of 2009.

Relative to the fourth quarter, sentiment deteriorated in four of the five sectors covered by the RMB/BER BCI. The nine-point declines in the building and retail trade sectors were the largest.

Building confidence dropped from 32 to 23, the lowest level in eight years. This fall

can primarily be attributed to an across-the-board dearth of new work.

After rallying from 23 to 33 in the fourth quarter, retail confidence reset to 24 in the

first quarter.

These readings are the lowest levels since the onset of the present business cycle downswing in December 2013. The low confidence stems mainly from the persistent underperformance of the largest component, non-durable goods (mainly food and beverages). Similar to 2018, the surprisingly strong performance of furniture sales remained the only bright spark.

Although wholesale confidence declined by a relatively modest four points from 44

to 40, this conceals a massive deterioration in sales.

After hovering around 34 in the first half of 2018, manufacturing confidence

slumped to 26 in the third quarter before recovering to 30 in the fourth quarter. It

relapsed to 25 in the first quarter, as an abrupt drop in export sales hit

manufacturers on top of a faster deterioration in domestic sales.

The new vehicle trade is the only sector that registered an improvement in

confidence. Following the drop from 37 to 15 in the fourth quarter, motor confidence

rebounded partially to a still low 26. Car sales remained dismal.

Bottom line

South Africa will not be able to shift to a lasting higher growth and prosperity path withoutmore short-term pain”, said Ettienne le Roux, chief economist at RMB. This time around, the country cannot rely on the global economy to counterbalance such internal adjustment costs as global growth itself is now shifting to a lower gear.

Heartening rise in non-residential activity in 2Q2018

Heartening rise in non-residential activity in 2Q2018

But Building Confidence drops to below 30

The FNB/BER Building Confidence Index lost 14 points to register a level of 29 in 2Q2018 – the lowest since 2Q2012.

The Index indicates that the majority – more than 70 per cent – of respondents are dissatisfied with prevailing business conditions.

The confidence of main building contractors fell marginally by 4 index points to register a level of 37 in 2Q2018. This is more or less in line with the growth in building activity which remained largely unchanged. Interestingly, there was some discrepancy between the performance of the two sub-sectors, residential and non-residential building, especially in terms of activity.

Building activity for residential contractors was unmoved from 1Q2018 while that of non-residential contractors improved nicely. “This is the second consecutive improvement in non-residential building activity and points to a reasonably positive first half of the year. However, two important aspects should be noted. Firstly, 2016 and 2017 were dismal years for this sector so growth could be exacerbated by base effects. Second, the factors that typically drive non-residential building investment, such as GDP growth, are not yet in place and it would be prudent to view the improvement in non-residential building activity so far this year with caution,” said John Loos, Property Economist at FNB.

A steep 45-index point drop in the confidence of hardware retailers to 2 weighed on the overall building confidence index. According to Loos, “Sales volume growth of hardware retailers deteriorated noticeably in the quarter, contributing to the weaker sentiment. However, the fall in sales seems exaggerated given that building activity, especially among main contractors, remained more or less unchanged from the first quarter. This suggests that other factors such as constrained consumer spending or softer demand in the home renovations market may have negatively affected hardware retail sales”.

Similarly, production volumes of manufacturers of building materials were also significantly lower. This resulted in a fall in confidence to 13 index points, from 45 in 1Q2018.

Activity at the start of the building pipeline continues to produce mixed results.
The confidence of architects slipped to 40, from 43 in 1Q2018, while quantity surveyor confidence was unchanged at 31. However, quantity surveyors reported a marked uptick in activity in the quarter, albeit still relatively weak compared to recent history. According to Loos, “while these results inspire little confidence with respect to a resurgence in building activity going forward, it doesn’t suggest that the sector is entirely in the doldrums either”.

Sub-contractor confidence was stable at 52 index points in 2Q2018. Confidence was stable even though building activity growth showed a clear deterioration.

Conclusion: After rising by 12 index points in 1Q2018, the FNB/BER Building Confidence Index fell to 29 in 2Q2018. The decline was mainly due to the sharply lower confidence of hardware retailers and manufacturers of building material. Nevertheless, activity was – with the exception of main contractors and quantity surveyors – poorer in the quarter. “The continued rise in non-residential activity in 2Q2018 is heartening. However, this was offset by a noticeable fall in hardware retail sales, hardware manufacturing production, and
sub-contractor activity. This suggests slower overall growth in the building sector this quarter,” stated Loos.

The outlook is also uncertain. “The mixed results from the building pipeline suggest that if there is any upside potential for the remainder of the year, it will be limited,” said Loos.

FNB/BER Building Confidence Index lowest since 2012

FNB/BER Building Confidence Index lowest since 2012

The FNB/BER Building Confidence Index fell to 31 in 4Q2017, from 35 in 3Q2017. This marks the lowest confidence since 3Q2012.

At the current level, the index indicates that the majority (nearly 70 per cent) of respondents are dissatisfied with prevailing business conditions.

The confidence of main contractors slipped to 34 in the fourth quarter of 2017 (4Q2017), from 44 in 3Q2017. However, according to John Loos, Property economist at FNB, “sentiment between residential and non-residential main contractors continues to be starkly different. In fact, this contrast was even more pronounced this quarter”.

John Loos: property economist FNB

While confidence of residential main contractors declined to 43 in 4Q2017, that of non-residential main contractors fell to 11. Moreover, building activity for non-residential contractors deteriorated, while that of residential contractors improved somewhat. “High vacancy rates across a range of non-residential sub-sectors as well as weak underlying economic activity seem to be taking a major toll on the non-residential building sector. In contrast, residential contractors saw activity growth edge higher, close to its long-term average,“ Loos added.

After rising by 29 index points in 3Q2017, the confidence of building material manufacturers fell 21 points to 16 in 4Q2017. “A decline in domestic sales and sales orders growth weighed on confidence in the quarter, whereas from an export perspective the sector fared reasonably well. This reinforces the idea that the domestic building sector remains under pressure,” commented Loos.

Confidence of architects and quantity surveyors fell to 25 and 38 index points respectively, thereby also weighing on overall sentiment in the building sector. In the case of architects, this marks the lowest confidence since 1Q2012.

Underlying activity remained poor during the quarter prompting the lower confidence. “Last quarter, the survey results showed a sharp decline in activity at the start of the building pipeline. This continued into the fourth quarter and bodes ill for the outlook for the building sector, especially the already underperforming non-residential market,” said Loos.
In contrast, building sub-contractor business confidence gained 10 points to register an index level of 47. The improved sentiment is largely due to increased work among non-residential sub-contractors. According to Loos “Much of the work is likely coming from additions and alterations rather than work related to new buildings”.

Hardware retailer confidence also rose in the quarter to 28 index points, from 18 previously. However, despite the increase in the index, the majority of respondents are still dissatisfied with prevailing business conditions.

In conclusion: A further weakening in building activity in the non-residential sector, along with a slowdown in activity at the start of the building pipeline weighed on confidence during the quarter. In contrast, residential contractor building activity seems to have returned to “normal” following the fall in activity reported in 3Q2017. On balance, however, growth in the sector likely slowed further in 4Q2017. Regarding the outlook, Loos stated that “The subdued prospects for the non-residential market cloud the outlook for the overall building sector. Even if we have some sort of recovery in the general economy, it will take some time before it is reflected in new non-residential building activity simply because the existing oversupply first needs to be absorbed”.

Building confidence dives sharply in Q2

Building confidence dives sharply in Q2

The FNB/BER Building Confidence Index fell sharply to 32 in 2Q2017, this after reaching its highest level in more than a year of 43 points in 1Q2017. Furthermore, all of the sub-sectors measured registered a drop in confidence. This has only happened in five other instances since the index was first compiled in 1997.

John Loos: property economist FNB

“The broad-based nature of the decline in confidence suggests that the sector is facing increasing pressure from a number of different fronts”, said John Loos, Property economist at FNB.

The current level of the index indicates that close to seventy per cent of respondents are dissatisfied with prevailing business conditions.

The biggest fall was reported by hardware retailers where confidence shed 24 index points to 13. This is the joint lowest level since 2Q2012. Continued low sales, coupled with rising input costs, weighed significantly on profitability in the quarter. This helps explain the fall in confidence. According to Loos, “the woes in the hardware sector is consistent with the broader retail environment which is suffering amid constrained consumer spending”.

The confidence of manufacturers of building materials also deteriorated to a multi-year low of 8 index points, from 25 in 1Q2017. The lower confidence was due to a marked decline in domestic production and sales.

The confidence of main building contractors declined to 36 index points, from 42 in 1Q2017. However, the overall confidence of main contractors hides the developments within the two segments, namely residential and non-residential. While the confidence of both residential and non-residential contractors fell in 2Q2017, at 41, residential contractor confidence is only marginally below its long-term average of 43. In contrast, non-residential contractor confidence fell to 25. “The divergent performance of the residential and non-residential segments is even more pronounced when looking at activity levels”, noted Loos.

Residential contractors reported a slight uptick in activity compared to 1Q2017. However, non-residential contractor activity, remained very depressed. Loos stated that, “Official data showed that residential investment was surprisingly robust in 1Q2017 and these survey results suggest that there is indeed some activity. Non-residential investment on the other hand has been contracting since 3Q2016 with no respite in 2017Q2. In fact, most of the evidence suggests that non-residential building activity is likely to worsen further before improving”.

The business confidence of building sub-contractors shed four points to 38 in 2Q2017. Underpinning the fall in confidence was a deterioration in building activity as well as a sharp drop in overall profitability.

After showing some promise in 1Q2017, activity at the start of the building pipeline slowed. Both architects and quantity surveyors were more pessimistic regarding activity in 2Q2017. As a result, confidence was lower, 49% and 46% respectively stated that business conditions were satisfactory, down from 55% in 2017Q1.

In conclusion: Non-residential building activity fared poorly in 1Q2017 with activity expected to remain under significant pressure in 2Q2017. In contrast, residential activity is predicted to improve somewhat, but unlikely by enough to offset the weaker non-residential market. The prospects for the other building related sectors are also downbeat. Softer consumer demand is expected to weigh on the fortunes of hardware retailers. This, along with the under-performing non-residential sector, will in turn sour the performance of building material manufacturers. “In all, the results are reasonably consistent in that they point towards a further contraction in the building sector in 2Q2017”, said Loos.