Building sector ‘could be in recovery’

1 December 2011

The FNB Building Confidence Index (BCI) increased to its best level this year, from 23 to 29 out of a maximum 100, mainly due to people doing overdue home maintenance, FNB said on Wednesday.

Confidence among residential contractors surveyed in the fourth quarter of the year rose from 20 to 22, but among non-residential contractors it declined from 21 to 14.

The results could indicate that South Africa’s building sector is slowly starting to recover, the financial services group said in a statement, while cautioning that the recovery was not a uniform showing but “short-lived flare-ups in activity”.

And, on average, seven out of 10 respondents in different sectors of the building industry continued to rate prevailing business conditions as unsatisfactory.

Conditions in six sectors

The Building Confidence Index varies between zero points for no confidence at all, and the maximum confidence level of 100 points.

It reflects the percentage of respondents satisfied with conditions in six sectors: 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 building pipeline, from planning (represented by the architects and quantity surveyors), renovation, additions, the informal sector (represented by building material merchants) and production (manufacturers of building materials) to construction of buildings by main and sub-contractors.

The 2011 fourth quarter results increased due to a 32 index point jump (from 17 in the third quarter of 2011 to 49 in the fourth quarter) in the confidence of building material merchants, and an increase of eight index points (from four to 12) in the confidence of building material manufacturers.

The confidence of architects, main contractors and sub-contractors barely moved, whilst quantity surveyors registered the only decline.

The 49 point confidence of building material merchants was still below the 53 they registered a year ago.

“The higher sales can be attributed to the need to do maintenance and renovations of existing buildings after a long delay,” Cees Bruggemans, chief economist of FNB said in a statement.

Retailers also benefited

Retailers also benefited from the fact that some of their competitors went out of business over the last year or so. Building material manufacturers experienced the highest rate of increase in the volume of sales since the recession in 2008.

Their ability to raise selling prices to make up for higher cost outlays remained limited, so profit growth and confidence remained low. The profitability of residential contractors improved, but that of non-residential contractors came under renewed pressure.

The fortunes of sub-contractors are closely tied to that of main contractors, so the confidence of residential sub-contractors increased from 35 to 39, while that of non-residential sub-contractors edged lower from 33 to 32.

The confidence of architects remained unchanged at 21, and that of quantity surveyors declined seven index points to 36.

Sapa