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Building confidence down again, but there is life yet

building plans and houseThe FNB/BER Building Confidence Index fell for the second consecutive quarter in 2Q 2016, by five points to 34. The current level of the index indicates that more than 65% of respondents are dissatisfied with prevailing business conditions. In addition, all of the six sub-sectors surveyed registered lower confidence.

The largest fall in confidence – for the second consecutive quarter – was registered by retail merchants with a drop of nine index points to 30. The fall in confidence was due to a sharp deterioration in sales and consequently, profitability. “The marked slowdown in hardware sales seems to point to the end of the DIY boom which has boosted the building (and retail) sector since the latter part of 2014,” said John Loos, property economist at FNB.

The index measuring the confidence of main contractors shed five points to register a level of 38 in 2Q 2016. This is the lowest level of the index since the first quarter of 2013. However, building activity was marginally better compared to 1Q 2016. Moreover, there was a distinct difference in the performance of the residential and non-residential sectors. While the confidence of both residential and non-residential contractors edged lower in 2Q 2016, residential building activity rebounded nicely.

“The difference in performance of residential and non-residential building activity confirms our view that the non-residential market is under significant pressure while there is still some life in the residential market,” said Loos.

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The Western Cape fared significantly better than the rest of the country both in terms of confidence and building activity during the quarter. “This is likely due to increasing inward migration to the Western Cape by residents from other provinces,” said Loos.

The outlook is marred by a moderation in activity at the start of the building pipeline and persistently poor growth in non-residential building activity. In addition, the weak retail environment suggests that a key support to the sector in 2015 is no longer there. “As mentioned in previous statements, developments in the broader economy such as higher interest rates, rising household indebtedness and soft domestic demand will also weigh on the building sector,” he said.

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