Nervous Business Sector Views

Property Confidence Index Reflects Nervous Business Sector Views

An astonishing drop in confidence in the construction and property industry in May was followed by a gradual recovery in June, according to the NZ Property Institute’s confidence index in Maltby’s Outlook for August 2000.

The index fell from a high of 99* in December, with May bottoming out around seven and a recovery in June to 32. This result closely resembled other surveys showing a similar drop in business confidence. This telephone survey was taken prior to the publication of the much-publicised National Bank May report.

NZ Property Institute CEO, Allan Ford, said it isn’t yet clear whether the upswing in confidence will continue. “I’m looking forward to the next quarter’s report to see what is happening.

“If anything, the recovery is likely to be relatively gradual, but I am concerned that subsequent events, such as the further fall in the dollar, the rise in fuel prices and the withdrawal of overseas investment will create a climate where it is difficult to maintain and improve confidence. Some reports have the underlying fundamentals in a stronger position than the survey would suggest.

“Several people in the sector have suggested to me that they are all right, but they suspect their competitors and colleagues are not doing so well. In particular it is evident that property people are taking a critical look at real depreciation and obsolescence across all sectors. Refurbishing expenses in the office sector are having a major impact on owners, and the costs of upgrading older residential properties to compete with modern construction and design is having a dampening effect in may suburbs naturally. The race of retailing too is changing on several fronts and causing caution in relation to the upside potential of many existing properties,” Allan Ford said. Page one of four
“Nevertheless, good omens, such as the Reserve Bank’s recent cautious approach to interest rate increases are welcome, and some sectors will perceive advantages in the lower dollar – this may generate development activity. An improvement in confidence will only follow recognition of viable business opportunities. This requires an economic and political climate that encourages reinvestment in New Zealand,” Allan Ford said.

The dramatic fall in confidence in May is less evident where the quarter’s data is averaged. Results averaged over April, May and June show that of the industry people interviewed 49% expected conditions to remain the same, 35% were pessimistic and 14% thought conditions would improve.

On a month by month basis a key message was that 76% of respondents believed that Government did not understand key issues affecting the property and construction industry. This was up from 59% in May.

Allan Ford said he believed this is further evidence that Government’s policies are not instilling confidence in the wider business sector and he believes this is clearly reflected in this survey of construction sector participants.
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The NZPI Confidence Index is part of Maltbys Outlook published quarterly in Property Business and to Maltby’s website at www.maltbys.co.nz. In addition to the confidence measure, Maltbys Outlook tracks key construction trends, including a regular tower crane count, lumber available on the domestic market and the quantity of ready-mix concrete produced. The confidence index is based on telephone surveys by UMR Insight, with the benchmark 1999 results based on a sample of 300 people involved in the construction and property industry.

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