Confidence in the building industry dropped further in the first quarter of this year, FNB said on Thursday as it published its Building Confidence Index.
The index dropped from an index value of 40 in the fourth quarter of 2008 to 28 in the first quarter of 2009.
FNB chief economist Cees Bruggemans said the index was approaching the historical low level of 12 index points that was recorded in the first quarter of 1999.
”The latter followed on the Asian crisis which led to a sharp rise in domestic interest rates at the time and a subsequent contraction in building activity,” he said.
The FNB Building Confidence Index measures the business confidence of all the major role players and suppliers involved in the building industry such as architects, quantity surveyors, contractors, sub-contractors, wholesale and retail merchants, and manufacturers of building materials.
The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at the University of Stellenbosch.
For the first quarter of 2009, all sub-components of the index showed a notable decline.
In particular, the following sectoral declines were recorded, compared to the fourth quarter of 2008: architects (-1), quantity surveyors (-21), building contractors (-9), sub-contractors (-11), manufacturers (-15), retailers/merchants (-5) and wholesalers of building materials (-18).
According to Bruggemans, after having remained stable at an index value of 34 for the past two quarters, the business confidence of residential contractors slipped to an index value of 26 in the first quarter of this year.
”This weakening could, amongst others, be related to the fact that business conditions turned out well below expectations,” he said.
Bruggemans said the constrained demand for building work was accompanied by intense levels of tendering competition, which led to severe margin pressure.
”It was therefore not surprising that a net 82% of the respondents that participated in the first quarter 2009 survey reported that the overall profitability of their companies was below that of the corresponding quarter a year ago.
”The slowdown in demand for residential buildings left participants to the survey with little choice but to reduce overheads and in this process a net 66% of respondents indicated that they reduced the number of people employed in their organisations,” Bruggemans said.
Turning to prospects for the second quarter of 2009, he noted the broad consensus among participants to the first quarter survey was that business conditions were likely to remain tough, but that a marginal improvement in residential building activity was expected.
FNB property strategist John Loos said that the business confidence of non-residential building contractors dropped from an index value of 59 in the fourth quarter of 2008 to 51 in the first quarter of 2009.
Loos added that with the demand for non-residential buildings faltering and competition in tendering intensifying, margin pressure adversely effected on the growth in profitability of the companies that participated in the first quarter 2009 survey.
”Weaker profit margins, in conjunction with a moderation in input costs of builders are likely to lead to a slowdown in building cost increases going forward.
”Stemming from the moderation in workloads, respondents reduced the number of people employed during the first quarter of 2009,” he said.
Loos said no major further deterioration in business conditions was expected for the second quarter of 2009. – Sapa