Johannesburg - After falling from 30 to 24 during the second quarter of 2010, the FNB Building Confidence Index bounced back to 29 during the third quarter of the year.
At 29, the index was low compared to the levels of 80 plus reached during the period 2005 to 2007, the bank said in a statement on Wednesday.
"Nonetheless, the index is at present still above 11, the lowest point reached during the previous downturn."
This suggested the index might not yet have reached its lowest point and could still decline further during upcoming quarters, FNB chief economist Cees Bruggemans said.
"At first glance the third quarter 2010 rise in the FNB Building Confidence Index appears to be a positive development. However, further analysis paints a bleaker picture."
Firstly, confidence merely returned to first quarter 2010 levels, which was in itself low. Secondly, respondents reported that their previous expectation of a turnaround did not materialise by far and that their volume of work continued to contract at a very fast pace during the third quarter of 2010.
"Given such unfavourable developments, the rebound in confidence is surprising and the fact that respondents are optimistic that the situation will improve during the fourth quarter of 2010 might have lifted their confidence."
Bruggemans said that during the third quarter of 2010 residential building activity had contracted at an even higher rate compared to the second quarter of the year.
"In contrast to respondents, we do not expect this dire situation to reverse as quickly. This time around the fall in the interest rate may in itself not kick start residential building activity as usual."
He said the demand for high-priced houses (R1m plus) which had been the lifeblood of the industry before the onset of the recession in 2008, would most likely remain weak for some time due to the fall in their attractiveness as investments and the number of people who could afford them.
"Residential building activity could recover earlier if the industry were able to supply more mid-priced houses (between R300 000 and R500 000) and government plans to increase spending on social housing are executed."
Bruggemans said that meanwhile increased cash spending on additions and alterations provided some work for residential contractors in the private sector and a boost to the sales of retailers of building materials.
During the third quarter of 2010, non-residential building activity continued to contract at a very high, albeit somewhat lower rate compared to the second quarter of the year.
"Similar to their residential counterparts, non-residential contractors expect activity to recover during the fourth quarter of 2010 and once more this expectation seems overly optimistic."
Bruggemans said the non-residential sector was only now after the completion of many large projects (mainly of institutional investors) entering a full blown recession.
"Usually it takes some time from this point onwards until activity picks up once more. Demand must first catch up with supply and vacancies and rent begin to rise before non-residential building activity will bounce back noticeable."
The Bureau for Economic Research (BER)'s survey of architects and quantity surveyors, which indicated that there was little work in the pipeline (in the form of the number of projects at sketch plan stage), supported the view that it would take some time before the non-residential sector recovered.
"Until then, other activities such as retro-fit will provide some work for non-residential contractors in the private sector."
Bruggemans said that of all the industries covered by the BER, confidence was the lowest in the building sector.
"Building activity continued to contract at a fast pace and we do not share the respondents' view that the turnaround is close by.
"In actual fact, we expect confidence to remain low and building activity to continue contracting for some time."
Bruggemans said that in the case of the residential sector, the low interest rate would not suffice to kick start a meaningful recovery.
"A more fundamental change in the type of houses that the industry supplies, may be necessary."
In the case of the non-residential sector, more time is needed to pass before demand would catch up with supply and trigger a meaningful rebound in building activity.