The latest FNB/BER Building Confidence Index gained 20 points to 24 points in the third quarter of 2020. A further rise in confidence to 29 was registered in the fourth quarter highlighting the joint best level since the close of 2018.
Despite the rise in confidence, the current level of the index indicates that more than 70% of respondents are dissatisfied with prevailing business conditions.
The following changes in confidence were registered in the quarter: architects (+16), sub-contractors (+14), hardware retailers (+9), main contractors (+7), quantity surveyors (-4) and building material manufacturers (-9).
Main contractor confidence registered its highest level this year (21). An increase in profitability also lifted confidence.
“The better sentiment this quarter was supported by improved activity. Although still lower than a year ago, the survey suggests that the rate of decline was less than in 3Q2020,” said Siphamandla Mkhwanazi, Senior Economist at FNB.
There was a clear diversion between confidence and activity among residential builders compared to the experience of non-residential builders. The index measuring activity in the residential sector improved noticeably whereas in the non-residential sector activity fell back to the level registered in the second quarter of 2020 (when Covid-19 restrictions on activity were the strictest).
As such, confidence also moved in different directions. However, most of the uptick in the residential activity came from residential sub-contractors (not reported on separately).
“There still seems to be some benefit to the residential sector due to additions and alterations resulting from people working from home, but also because people are now spending more time at home in general. Furthermore, the increase in mortgage activity in certain segments of the property market is also lifting activity relating to renovations. It must be emphasised, however, that these are small projects of lower value,” remarked Mkhwanazi.
For similar reasons to the residential sub-contractor segment, hardware retail sales rose significantly in the fourth quarter of 2020. This pushed hardware retailer confidence to its highest level since 2015 of 64.
“Consumers who have managed to hold on to their jobs and have not received a salary cut have more disposable income than before given the lower interest rate environment and savings related to working from home. Some of this money seems to have been channelled into hardware sales.”
Building material manufacturer confidence slipped to 31 in the fourth quarter. This was despite a significant increase in domestic sales (to its best level since the 2017’s first quarter on the back of retailer demand) and production (to its best level since the first quarter of 2018).
“Although production is higher, an increasing number of builders have indicated that the inadequate supply of building materials is constraining business operations,” added Mkhwanazi.
Activity at the start of the building pipeline remained very downbeat. Despite this, architect confidence increased to 30 in the fourth quarter of 2020. The confidence of quantity surveyors fell to 0.
“Whatever optimism we are experiencing in the residential building and hardware sector must be tempered by the continued weakness in the building pipeline/incoming activity,” cautioned Mkhwanazi.
The FNB/BER Building Confidence Index rose for the second consecutive quarter to 29 in the fourth quarter of 2020, from 24 in the third quarter. Outside of the higher confidence among architects (which is not supported by activity), most of the boost to confidence this quarter once again came from smaller projects related to home renovations and alterations. This has lifted sentiment among residential builders and retailers of hardware.
Despite the rise in confidence this quarter, the outlook for the sector remains bleak.
“The large-scale capital (or new) projects required to boost the sector more substantially remain elusive, and could be for some time, especially in the non-residential sector. High office vacancy rates and therefore low, even declining, rental growth and the sharp rise in e-commerce at the likely expense of a physical store presence is likely to weigh on demand for office and retail space respectively over the medium term. This is confirmed by the persistently weak state of activity among architects and quantity surveyors” he concludes.