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Johannesburg - The First National Bank building confidence index tumbled from a level of 86 in the fourth quarter of last year to 66 in the first quarter of 2008, as high interest rates took a toll on both residential and non-residential building.
The index means that 66% of respondents still see an improvement in business conditions. FNB property strategist John Loos said while the overall number remained fairly high, the drop was dramatic.
Business confidence of all sub-categories of the index declined. The most notable declines observed were: retailers of building materials (from 100 to 48), manufacturers (from 92 to 54), wholesalers (from 79 to 52) and building contractors (from 83 to 68).
A surprise feature of the index was that business confidence of non-residential building contractors plummeted from an index value of 92 in the fourth quarter of 2007 to 78 in the first quarter of this year.
Respondents to the non-residential survey reported that business conditions turned out well below expectations.
A net 2% of responents expected an improvement in the growth in building activity at the time of the previous survey, but in the first quarter a whopping 20% of non-residential contractor participants experienced a decline in activity.
Loos said he believed that building of retail property space (as opposed to industrial or office space) was tapering off as the consumer boom came to an end.
Eskom shortages might also have played a role as business people might have anticipated power outages. "But the most important aspect is the business cycle. This isn't only reflecting higher interest rates, but also an over-supply of retail property space in recent years," Loos said.
The business confidence of residential building contractors dropped from 76 in the fourth quarter of 2007 to 60 in the first quarter of this year.
FNB chief economist Cees Bruggemans said the first quarter growth in building activity in this sector of the industry disappointed. For example, whereas a net 21% of respondents expected a weakening in the first quarter of 2008, the latest survey results revealed that in fact a net 39% experienced a decline in workloads.
A net 46% of respondents to the residential building survey indicated that the growth in profitability of companies was below that of the same quarter a year ago.
The FNB 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. The survey was undertaken between February 4 and March 3, 2008.
- Fin24.com