The FNB/BER Building Confidence Index increased in the sector quarter to its highest level since the first quarter of 2018, but contractors dissatisfied with business conditions and some even resorted to “suicide pricing”, FNB senior economist Siphamandla Mkhwanazi said yesterday.
After slipping to 27 in the first quarter of this year, the index increased to 27 in the second quarter. However, more than 60 percent of respondents were still dissatisfied with current business conditions.
Overall profitability in the second quarter remained weak, even relative to the second quarter of 2020.
“Internationally we’ve seen building input prices rise dramatically over the past few months as global demand far outstrips supply. Domestic building demand remains too weak for contractors to fully pass these prices on to clients. As such, some contractors have had to resort to ‘suicide pricing’ to secure contracts”.
The difference in the overall index gain was that in the first quarter of 2018, confidence among the sub-sectors that comprise the index were at much the same level, but in the second quarter 2021 confidence was being lifted by building material manufacturers and hardware retailers.
“The confidence of the mainstream building sector is still very depressed,” said Mkhwanazi.
The confidence of main contractors gained only two points to 22 in the second quarter.
The index measuring activity was noticeably better, but this was because respondents were asked to compare activity with the second quarter of 2020, when building was halted.
The improved activity was therefore largely due to extremely low base effects and did not suggest a vastly improved level of activity in the building sector, he said.
On a sub-sector level, the trends remained broadly similar to those in recent quarters. The residential sector was faring better than the non-residential sector in confidence and activity.
Sub-contractor confidence gained 10 points to a level of 29. Activity was somewhat better than for main contractors, likely pointing to an uptick in smaller rather than bigger projects.
With respect to the building pipeline, activity was low, but stable.
The confidence of architects and quantity surveyors was up by only two and nine points to 23 and 26 respectively.
“The results from the building pipeline provide no indication that better demand for building work is in the offing. This further emphasises the likely temporary nature of the rise in main contractor activity seen this quarter,” said Mkhwanazi.
The demand for retail hardware continued to surprise.
According to respondents, sales volumes were well supported and hardware retailer confidence regained its losses of the first quarter to a level of 65, the highest highest level since the fourth quarter of 2007.
“Retail sales have consistently outperformed in recent months, supporting hardware retailer confidence, but also the composite confidence index. However, this represents a small subset of the building sector, namely the DIY and informal markets,” said Mkhwanazi.
The biggest change in confidence (31 points) was registered by manufacturers of building material. At 67, sentiment was also the highest of the sub-sectors surveyed.
A strong rebound in domestic demand, reflected in both sales and prices, underpinned the positive sentiment. Expectations for the third quarter for building material manufacturers were also upbeat.
BUSINESS REPORT