1. BER Survey Results 2013Q2 Dr Johan Snyman Medium-Term Forecasting Associates STELLENBOSCH 21 June 2013

2. Summary Banks, Building, Architects and Quantity Surveyors The BER business survey for the second quarter of 2013 (with prospects for the third quarter of 2013) have been released: “The 2013Q2 survey results suggest that the recovery in the building sector is gaining momentum. Moreover, the rise in confidence across the different phases of the building sector indicates that the recovery is becoming more broad-based and therefore likely to be more sustained”. Our MFA analysis indicates that there is a close correspondence between the perceptions of roleplayers in the building industry, as captured by the BER, and investment data, as compiled by the SA Reserve Bank. The great benefit of “soft” business survey data is that it is more recent than “hard” SARB investment data. The SARB data pertain to 2013Q1, whereas the BER survey data reflect the perceptions of business people during 2013Q2.

3. The results of the BER business survey amongst retail banks show that banks applied stricter lending criteria during the latter part of 2012 when great uncertainty prevailed in the South African economy. The latest 2013Q2 results indicate a return to normality. The current reading of 70 is just above the long term average of 66. This finding is positive for the housing market because mortgage loans could become more freely available.

4. The MFA CLIBI moved sideways for six quarters, but rose in 2011Q4 to an index level of 33. In 2012Q1 it rose further to 37. During the second and third quarters of 2012 the index dropped marginally to 35. In the fourth quarter of 2012 it rose to 40. It rose to 43 during 2013Q2. This improvement could presage a continued recovery in real building activity levels in coming quarters.

5. This comparison between “soft” BER data and “hard” SARB data of real investment in total buildings shows that building investment is growing modestly (1% to 3% y-o-y). Phrased differently, overall building demand is gradually recovering from a severe slump

6. The improvement in the BER business confidence levels of residential building contractors suggests that levels in real investment in residential buildings (SARB data) could improve further in coming quarters. Note that both indicators are in positive territory for the first time in 5 years

7. Note that the leading indicator of the BER business mood amongst non-residential builders is in positive territory for the first time in 5 years. SARB investment data in non-residential buildings are also barely positive, reflecting modest growth

8. When compared to the overall economy (manufacturing, wholesale, retail, and vehicle sales surveyed by the BER), the business mood of building industry respondents reached a deeper level of pessimism during the recent downturn. However, both these key indicators are now presaging growth in coming quarters

9. Black and white consumers are bucking the trend with key indicators declining. Could it be that consumers are disillusioned with economic and political developments as they unfold in South Africa?

10. The business mood indicators of architects, quantity surveyors and building contractors are showing further improvement

11. Both indicators have crossed into positive territory for the first time in 5 years

12. Labour and materials bottlenecks eased during the recession. Materials shortages are developing. Skilled labour shortages remain the bane of the industry

13. Competition in tendering is still fairly keen, but the trend in this indicator is downward, implying an easing in the degree of competition. Hence, tender prices rose rapidly ( 11% y-o-y ) in 2013Q2. Only the survivors who remain in the game, are currently tendering

14. The average number of tenderers on the tender list has fallen quite suddenly as happened in 1974, 1978 and 1986. This reflects less intense competition in tendering with the indicator having fallen from 10 in 2010, to 6 during 2013Q2

15. Despite our earlier expectation in 2013Q1, builders’ merchants currently view their stock levels as “ above average” in 2013Q2 with a reading of 70. This could lead them to reduce stock levels.

16. On balance, general business conditions in the Western Cape seem to be improving, with main contractors now in the positive zone. Sub- contractors seem to lag

17. Confidence is returning to main and sub-contractors in the Eastern Cape

18. The business mood of main contractors and sub-contractors in KZN is showing some improvement from very low levels recorded in 2010

19. The business mood of main contractors and sub-contractors in Gauteng is showing further improvement

20. The business mood of civil engineering contractors rose from 36 to 51 in 2013Q1, becoming positive for the first time in four years

21. Both the qualitative (survey) and quantitative SARB investment data are barely positive

22. Thank you for your attention … Johan Snyman mfa@iafrica.com