The virtually unchanged confidence confirms that the momentum of the recovery in activity levels, which was more pronounced during 1Q 2012 and tapered off slightly during 2Q 2012, remained hesitant during 3Q 2012.
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 six 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.
In contrast to the RMB/BER BCI, which includes only main contractors, the FNB/BER building confidence index covers the whole pipeline. This includes planning (represented by the architects and quantity surveyors), renovations, additions, owner builders, the informal sector (represented by building material and hardware retailers) and production (manufacturers of building materials) to the erection of buildings by main contractors and sub-contractors.
Unlike in recent surveys, where one or more sectors would register significant changes in confidence from one quarter to the other, confidence across all the sectors surveyed remained largely stable during 3Q 2012. Compared to 2Q 2012, the following changes in confidence levels took place, namely, main building contractors and retailers of building material (+2), quantity surveyors (+1), building sub-contractors and manufacturers of building materials (-3) and architects (unchanged).
During 3Q 2012, the change in confidence of residential and non-residential main contractors was this time far more comparable, in contrast to the much bigger divergence earlier this year. Residential confidence rose from 26 to 28 index points, while non-residential confidence inched 1 index point higher to 20. Overall, main contractor confidence rose from 24 to 26 index points.
However, the underlying activity indices continue to favour the perception of a faster growing (or recovering) non-residential than residential sector, which is unusual for this stage of the building sector recovery. Activity levels within the non-residential sector continued to improve, boosted by increased public sector spending on provincial and municipal level in particular, while the rise in residential activity continued to be more restrained. This probably mainly reflects the changed credit culture in the country in line with overseas developments, which has made household access to mortgage credit for the middle and upper segments more difficult to obtain.
Despite the uptick in building activity, the demand for new work remains weak. The number of firms concerned about the effect of weak demand for new buildings on their business has remained virtually unchanged at high levels. Notwithstanding rising activity levels, the weak building demand highlights the risk that the building recovery may remain subdued for longer. A related concern is the slowdown in activity among architects. Architect confidence remained unchanged at 30 index points between 2Q 2012 and 3Q 2012. However, this hides the fact that activity declined across all the phases of the architect pipeline during 3Q 2012. This is usually a fair leading indicator of actual building work to come and - combined with prevailing weak demand - again suggests a continuation of the current slow recovery rather than a more robust one.
In contrast, quantity surveyor activity levels rose more than expected during 3Q 2012. However, this did not greatly affect confidence, which rose only marginally from 42 to 43 index points during the quarter.
After falling by 29 index points to 11 points during 2Q 2012, building material and hardware merchants confidence gained a meagre 2 index points to 13 during 3Q 2012. Although sales improved compared to 2Q 2012, relatively high purchasing price increases resulted in a fall in profitability and kept confidence relatively low.
Building material manufacturers confidence eased to 17 index points from 20 points during 2Q 2012. The slight drop in confidence was reinforced by the underlying information, which points to a softening in domestic sales and production during 3Q 2012.
Sub-contractor confidence was also lower, shedding 3 index points to 29 during 3Q 2012. As stated last quarter, the rise in activity recorded among main contractors has not yet filtered down to the sub-contractor level.
The 3Q 2012 survey results suggest that the building recovery remains very hesitant. Building activity levels of main contractors and retail sales of building materials and hardware improved during the quarter, while manufacturing sales and production slowed (but remains positive).
However, there are a number of risks, including weak demand and signs of slowing activity at the start of the building supply chain, which could further hamper the pace of the recovery.
Source: BER, Stellenbosch
