Business confidence in the building industry was more positive by the middle of the third quarter than is reflected in the real situation in the struggling industry.

Business confidence rose to 29 index points in the third quarter from 24 points in the second quarter, the latest building confidence index from First National Bank (FNB) showed.

This index reflects the confidence of all the large role players in the building industry, among which architects, contractors, sub-contractors, manufacturers of building materials, wholesalers and retailers.

However, experts say it is by no means an indication that the building industry is busy recovering.

“At first glance it seems as if the rise is a positive development, but a closer analysis sketches a grim prospect,” says Dr Cees Bruggemans, chief economist at FNB.

Firstly, he says confidence has merely returned to around the same level measured in the first quarter. The level of 30 points was already low.

Secondly, respondents indicated that their previous expectations of a turnaround have not materialised and that the volumes of work declined sharply in the third quarter.

He says against this background the rise in business confidence does come as a surprise. However, the level of 29 remains low compared with the levels of 80 or more experienced between 2005 and 2007. It is nevertheless higher than the 11-point low experienced during the previous cycle.

Bruggemans says it is an indication that the index has not reached its lowest point and could drop further in coming quarters. He predicts that it could still take at least a year before the industry turns itself around.

He bases this prediction on the fact that growth in residential building activity has shown a faster decline than in the second quarter. In contrast to other respondents he doesn’t expect that this situation will see a quick turnaround. “Not even the lower interest rate environment will blow new life into the industry.”

He expects the demand for houses in the R1m-and-over price category, which was the bread and butter of the building industry before the recession in 2008, will remain weak for a while. “Residential building activity can experience an earlier recovery if the industry is able to build more houses of between R300k and R500k,” he says.

However, the issue is whether the building contractors would be willing to shift its focus from their traditional market with its higher profit margins to this market where profits are not the same. – Elma Kloppers, Sake24

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