Hitting a brick wall

The demand for new houses has dropped in the face of a tight interest rate environment.

The demand for new houses has dropped in the face of a tight interest rate environment.

Released yesterday, the FNB Building Confidence Index declined to 50 in the second quarter from 66 in the first quarter and well below an index value of 88 in the same quarter last year.

The index, compiled quarterly in conjunction with the Bureau for Economic Research (BER) at Stellenbosch University, measures the confidence of all the players involved in the building industry such as architects, quantity surveyors, contractors, subcontractors, wholesale and retail merchants, and manufacturers of building materials.

FNB chief economist Cees Bruggemans said the decline in confidence over the past quarter was due to a moderation in all categories, except in the case of quantity surveyors where confidence increased.

"The latter development can possibly be related to the fact that second quarter business conditions turned out somewhat better than expected by the respondents at the time of the previous survey. However, an analysis of other survey indicators shows that quantity surveyors are also starting to experience the moderation in overall building activity," said Bruggemans.

The business confidence of residential building contractors decreased sharply from an index value of 60 in the first quarter to 32 in the second quarter of the year.

Bruggemans said the second quarter growth in building activity in this sector of the building industry had hit a brick wall and was well below expectations.

For example, whereas a net 39percent of respondents expected a weakening in the second quarter, the latest survey results revealed that in fact a net 69percent experienced a decline in workloads.

He stated that possible reasons for the sharply weaker demand for residential building were, among others, rising interest rates and building costs, tightening of credit standards by banks, the lagged impact of the introduction of the National Credit Act last year, a deterioration in consumer confidence, and rising food and fuel price inflation that is eroding the buying power of consumers.

Looking ahead, Bruggemans said business conditions in the third quarter would likely remain unfavourable. - I-Net Bridge