confidence falls as building sector feels pinch
09 July 2008
 
The survey, released yesterday, showed that activity levels in the residential and nonresidential sectors fell in the second quarter because of a combination of factors, including higher interest rates, rising input costs and electricity supply problems. The index measures the business confidence of all the major players and suppliers involved in the building industry such as architects, quantity surveyors, contractors, subcontractors, wholesale and retail merchants, and manufacturers of building materials.

It showed a general decline in confidence in the sector to 50 in the second quarter from 66 in the first quarter. The latest figure compares with 88 in the corresponding second quarter a year ago. Hardest hit was the residential building sector, where contractors’ confidence fell sharply to 32 in the second quarter from 60 as demand weakened.

Business confidence of nonresidential building contractors fell from 78 in the first quarter to 70 in the second quarter. This figure stood at 92 in the fourth quarter last year. “Activity levels are far lower than people expected as players met conditions they did not expect, especially in the residential sector. The changes are pretty big,” FNB chief economist Cees Bruggemans said. “In the case of the nonresidential sector, the main problem for contractors is not getting guarantees of electricity connection for new developments and this may be intimidating contractors.”

Bruggemans said second- quarter growth in building activity in the residential sector of the building industry was well below expectations. Reasons for weaker residential building demand included rising interest rates and building costs, banks’ tightening of credit standards, the National Credit Act, weaker consumer confidence and rising food and fuel price inflation, which eroded consumers’ buying power.

“It was therefore not surprising a net 68% of respondents to the second-quarter survey reported that the profitability of their businesses deteriorated notably,” the survey said.  Bruggemans said in view of the sharp deterioration of residential building activity, job shedding occurred. “We expect business conditions to remain unfavourable for the rest of the year, but do not expect a major deterioration in both sectors.”

Bheki Mpofu, www.businessday.co.za