Sentiment in the building construction sector, as measured by the financial services firm FNB and the Bureau for Economic Research (BER) Building Confidence Index, slipped to 33 in the fourth quarter, from 34 in the previous quarter.

This means that the index has been broadly stable, at a historically low level, for much of the year, says FNB senior economist Siphamandla Mkhwanazi.

The subsectors that comprise the composite index all registered significant changes in confidence compared with the third quarter.

Adding to overall sentiment were building material manufacturers, which was up by 20, main contractors by 17 and quantity surveyors up by nine index points.

In contrast, confidence among hardware retailers declined by 17, architects by 16 and building subcontractors 15, acting as a drag on the overall business mood.

While the composite confidence index is largely unchanged, building activity, particularly among residential main contractors, improved markedly.

“After declining for the most part of the last few years, it seems as if building activity has finally stabilised. This does not necessarily mean that an expansion in building activity is on the cards for fourth quarter, but rather that the decline should be less pronounced than in previous quarters,” notes Mkhwanazi.

While activity among main contractors improved, architects revealed that the amount of work available slowed further in the fourth quarter. This is unexpected given the consistent improvement in the building pipeline reported by respondents for much of the year.

“The somewhat mixed building survey results this quarter highlight how uncertain prospects remain in the sector. It is prudent to remain cautious about the outlook for 2023,” he says.

SUBSECTORS
After falling to 29 in the third quarter of the year, the business confidence of main contractors rebounded to 46 in the fourth quarter. Underpinning the improved sentiment was an improvement in building activity, predominantly among residential contractors, he adds.

“Even though confidence largely moved sideways, the results with respect to especially main contractor activity were encouraging.”

Other factors lifting main contractor confidence include a slight improvement in profitability, less keen tendering price competition and a lower rating of insufficient new demand as a business constraint. The latter points to reasonably upbeat prospects for building activity in 2023.

The residential building sector seems to be quite resilient despite a number of headwinds. However, the momentum in activity is disproportionately clustered in the Western Cape. It is unlikely that this alone with be enough to support the sector going forward, he highlights.

Non-residential contractors, meanwhile, reported a slowdown in building activity during the quarter.

“The weaker outcomes for non-residential building activity are in step with the broader commercial property fundamentals which include still-high office vacancy rates and, more recently, an easing in building activity in the industrial and warehouse segment,” Mkhwanazi notes.

The business confidence of architects declined to 34, from 50 in third quarter, on the back of softer activity.

“After improving consistently for most of the year, it is disappointing that architects reported lower activity growth this quarter. This goes counter to the better activity reported by main contractors,” says Mkhwanazi.

On the other hand, activity among quantity surveyors was up, lifting their confidence to 31.

Meanwhile, confidence among hardware retailers fell to 39 in the fourth quarter. Sales volumes remained on a downward trajectory, contributing to the downbeat business mood.

“The weaker retail hardware sales are largely a reflection of the pressure on consumer spending. With the Covid-19 surge in do-it-yourself and additions and alterations-related demand firmly over, the weaker financial position of households, as well as a switch to spending on services, is weighing heavily on this sector.”

Partially linked to the softer retail demand are lower sales and production, as reported by building material manufacturers. However, their confidence moved higher to 20 in the fourth quarter.

The business confidence of building subcontractors shed 15 points to 30 the in the fourth quarter of the year.