Building confidence on a high
18 July 2007
South African building confidence rose to a near record high in the second quarter of 2007, with increased demand for commercial property offsetting a slight decline in the residential market, according to the latest FNB building confidence index.
The quarterly index, compiled by the Bureau for Economic Research (BER) at Stellenbosch University, rose from 87 in the first quarter to 88 in the second quarter, just shy of the record 89 posted in the last quarter of 2006.
The index measures the confidence of all major role players and suppliers in the industry, and is compiled from building, manufacturing, retail and wholesale sector opinion surveys.
First National Bank (FNB) chief economist Cees Bruggemans said in a statement this week that the second-quarter increase in the index was the result of a sharp recovery in the confidence of architects, as well as moderate rises in the case of sub-contractors and wholesalers of building materials.
"In the case of retailers of building materials, confidence levels remained static, while those of quantity surveyors, manufacturers of building materials and building contractors showed a slight decline," Bruggemans said.
Builders operating in the non-residential sector of the industry were very upbeat about business prospects over the short term, said FNB commercial property strategist John Loos.
Loos said the confidence of contractors in that segment of the industry remained steady at 94 for the second quarter, with growth in building activity exceeding the expectations of contractors in the previous survey.
"As a result of the robust growth in building activity experienced in the non-residential sector of the building industry, employment levels showed further gains during the second quarter," the BER said.
Conditions 'most favourable'
The boom in commercial property development comes at a time when the South
African government is pushing ahead with a multi-billion rand programme to upgrade the country's fixed infrastructure, mainly through state-owned companies Transnet and Eskom.
According to figures released by Statistics South Africa this week, public sector capital expenditure increased from R57.2-billion in 2005 to R71.8-billion in 2006, representing an increase of 25%.
This, together with activity taking place around the country on infrastructure related to hosting the 2010 Fifa World Cup, and construction of the Gautrain rapid rail link between Sandton and OR Tambo International Airport, is beginning to put some strain on the sector.
"Given the buoyant state of non-residential building activity, respondents indicated that shortages of skilled labour and the inadequate supply of building materials were seriously constraining their building operations," the BER said.
Respondents in the BER's survey expressed the view that business conditions were likely to remain most favourable during the third quarter of 2007, but also noted that building activity was likely to proceed at a more moderate pace.
Regarding the residential sector, Bruggemans indicated that business conditions were adversely affected by the 200 basis points increase in the repo rate during 2006, with the business confidence of residential contractors dropping from a value of 86 in first quarter of 2007 to the present level of 82.
Though the slowdown in residential building activity had moderated, the BER noted that less favourable conditions had put pressure on builders' profit margins.
"Growth in building activity turned out more or less in line with expectations expressed at the time of the previous survey, and a small net percentage of respondents indicated that building activity levels were below those of the same quarter a year ago," the BER said.
However, contractors surveyed expected business conditions to remain more or less stable, with an improvement in the tempo of residential building activity.
SouthAfrica.info reporter
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