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Q3 building sector confidence is ‘less weak’

Western Cape confidence is at 60; but the rest of the country is in the doldrums – John Loos, property economist – FNB.

SIKI MGABADELI:  Building-sector confidence regained some ground in the third quarter, rising to 38 points from 34 in the second quarter. Higher confidence was recorded among five of the six sub-sectors that are measured, led by quantity surveyors. Even though confidence improved, the current level of the index indicates that more than 60% of respondents are dissatisfied with the prevailing business conditions.

Let’s chat to John Loos, who is property economist at FNB. John, thanks so much for your time today. I’m tempted to say it’s good news, because I’m always grasping at straws, looking for some good news. We are seeing a turn towards the positive, even though more than 60% of respondents are still dissatisfied. Can I say that?

JOHN LOOS:  Ja. I suppose the best way to put it is that it’s not stronger – it’s less weak. One always wants to see these things improve, but on a scale of 0–100 it’s down at 38 still, up from 34. So the overwhelming majority of survey respondents are not happy with conditions at the moment.

The only exception to that is probably, if you break it up by region, in the Western Cape, where you’ve got about a 60 level of business confidence. It’s certainly going very well there, but not for the rest of the country.

SIKI MGABADELI:  I see that building activity remained unchanged from the last quarter. What’s holding that back and is it both residential and non-residential?

JOHN LOOS:  This is the other thing. The confidence improvement didn’t appear to be due to any improvement in actual activity taking place. The survey respondents suggested more or less a similar amount of activity, but an improvement in profitability and a decline in tendering competition.

So that can mean one of two things: perhaps a few more projects being put out to tender for the future, which means a pipeline coming through. It could be a combination of that and possibly one or two players that have dropped out of the market. That’s the negative side, which can boost confidence and profitability for the rest.

If one looks at the pipeline, it indicates that the pipeline quantity-surveyor confidence rose a bit there and for architects – for quantity surveyors quite a bit from 35 to 50. So that suggests there’s a pipeline of activity that’ll come through and boost the activity for building contractors ultimately.

SIKI MGABADELI:  Are there any encouraging signs for the short term?

JOHN LOOS:  Well, I suppose it’s moderately encouraging when you look at the quantity-surveyor confidence and you see that there might be something of a pipeline. At the moment it looks like whatever is improving is more on the residential side.

The commercial side at the moment is very much in the doldrums. Contractor confidence on the non-residential side actually weakened a little bit in the quarter.

SIKI MGABADELI:  What was the one sub-sector where higher confidence was not recorded?

JOHN LOOS:  Most of them have been recorded, but the very low one is retailers. Retailers of hardware material are down at about 30-odd. So they really are in the doldrums – 31 to be exact. And materials manufacturers as well – at 21. They also showed very slight improvements but yes, very, very low figures coming out there.

SIKI MGABADELI:  [Chuckling] I think we are both trying to find the silver lining. Thanks, John.

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