The FNB/BER Building Confidence Index, which measures sentiment in the building sector, increased to an eight-year high of 43 (a gain of nine index points) in the fourth quarter of this year.

The current level of the index means that a little over 55% of respondents are dissatisfied with prevailing business conditions.

Compared with the previous quarter, the following changes in confidence were recorded: architects (+24), hardware retailers (+18), building subcontractors (+11), building material manufacturers (+3), and quantity surveyors (-1).

The confidence of main contractors was unchanged.

Similarly, the core building confidence index (excluding building material manufacturers and hardware retailers) rose to 48 in the period.

This means that sentiment, using this measure, is balanced (that is, the number of respondents satisfied with prevailing business conditions and the number that are dissatisfied are broadly even).

“Also encouraging from these results is that activity this quarter was generally upbeat. This means that the better sentiment is based on stronger underlying fundamentals, namely actual work currently available,” says FNB senior economist Siphamandla Mkhwanazi.

Main contractor confidence was unchanged at 41 in the quarter and is said to have been reasonably stable at this level for the entire year.

However, the index measuring the growth in activity was sharply down this quarter.

“It is unsurprising that the activity index recorded a marked decline this quarter. The building sector has registered robust growth since the middle of last year. Indeed, growth in building demand accelerated, in real terms, by an average of 6.4% year-on-year in the first half of this year.

“Therefore, the decline in the activity index this quarter merely means that the growth momentum is normalising after a brief growth spurt,” explains Mkhwanazi.

While the overall results are highlighted as being reasonably positive, the divergence between the residential and non-residential sub-segments is said to be becoming clearer.

Although activity for residential building work still held up well, order books deteriorated.

Meanwhile, non-residential builders are optimistic (confidence moved further above 50) partly owing to much better overall profitability.

“Given the worsening state of the residential property sector, it is expected that residential builders are also starting to feel the strain in terms of the outlook for new work. In contrast, the non-residential property sector is weak, but improving.

In summary, non-residential builders are faring relatively better, albeit off a very low base,” says Mkhwanazi.

The business mood of architects jumped to 54 in the period, its joint (along with first quarter 2017) best level since third quarter 2015.

Underpinning the better sentiment was higher activity across the architect value chain.

Similarly, the index measuring quantity surveyor activity moved sharply higher (to its joint, along with first quarter 2014, best level since third quarter 2007).

Despite this, sentiment edged one point lower to 38.

“It is clear that activity at the start of the building pipeline was on a solid footing in fourth quarter However, there is concern among respondents regarding the sustainability of this uptick and broader conditions within the sector, which in part explains the downbeat confidence of quantity surveyors relative to activity,” says Mkhwanazi.

Building material manufacturer confidence moved higher to a still low 29. This is in step with below-average growth in production, albeit up compared with the previous quarter.

Hardware retailer sales improved noticeably, to the best level this year.

“Within the retail sector, hardware firms have been the worst performers in terms of sales over the past few quarters as consumers sacrificed do-it-yourself and other renovation projects to maintain spending elsewhere. Some of this renovation demand seems to have returned this quarter,” says Mkhwanazi.

Building subcontractor confidence gained 11 points to 58 in the period.

Overall, the results are highlighted as encouraging given better activity, when considering the entire building sector value chain.

In the case of the non-residential sector, profitability continued to trend higher.

“It is prudent, however, to highlight some concerns regarding the outlook for the building sector.

Firstly, the growth momentum seems to be normalising relative to the last few quarters. Secondly, the fundamentals in the residential property sector, especially weak house price growth, suggest that this segment may come under strain in the near future. Indeed, the deterioration in order books also points to that.

“Thirdly, even though activity at the start of the building pipeline was noticeably higher, not all of those projects will proceed to the construction phase, especially in an environment of relatively high interest rates. Lastly, the overall economy is expected to post subdued growth at best next year, which will no doubt have a bearing on the potential momentum in the building sector,” says Mkhwanazi.