After rising to 29 in the last quarter of 2020, the FNB/BER Building Confidence Index has slipped by two points to 27 in the first quarter of 2021.
Activity was also broadly lower which contributed to the slight decline in sentiment and the current level of the index means that more than 70% of the built environment surveyed are dissatisfied with prevailing business conditions.
Main contractor confidence edged one index point lower to 20 in 2021’s first quarter. In contrast, sub-contractor confidence fell by 11 index points to 19, erasing almost all the gains in 2020’s fourth quarter. This drop in confidence was underpinned by a deterioration in building activity growth.
“Looking closer at the results, it is evident that the divergent performance of the residential and non-residential seen last quarter – this is the combined results for both main contractors and sub-contractors – persisted” says Siphamandla Mkhwanazi, Senior Economist at FNB.
“Although it declined to 27, from 33 in 2020’s fourth quarter, so in itself still struggling, residential builder confidence in 2021’s first quarter was noticeably higher than non-residential contractors”.
Furthermore, this performance is also observed in the level of activity which continued to contract more significantly for non-residential contracts which resulted in a rise in tendering price competition to its highest on record.
“There are many factors working against non-residential building demand, including an oversupply of office and retail space, which was exacerbated by the Covid-19 pandemic. Discouragingly, this oversupply is likely to persist through 2021 at least” notes Mkhwanazi.
Main contractors are also increasingly concerned about the shortage of building material supplies.
The weak demand in the non-residential sector also weighed on upstream activity. “Architects have struggled this quarter with low activity. This is, however, not only due to the state of building demand, but also due to the slow pace of municipal approvals,” stated Mkhwanazi. In contrast, quantity surveyors saw a rise in activity. This lifted confidence to 17 in 2021’s first quarter.
The confidence of building material manufacturers gained 5 points to register a level of 36 in the first quarter of 2021. Supporting confidence was a continued rise in production and domestic sales.
“It is unlikely that the increased demand experienced by building material manufacturers comes from main building contractors given their results this quarter. More plausible is that this is due to still strong retail hardware sales, albeit slowing, and potentially also from the civil construction sector. Additionally, the rise in production could also be due to firms trying to make up for lost production last year,” remarked Mkhwanazi.
Hardware sales growth slipped somewhat in the first quarter in 2021 but remained reasonably robust. As such, the business confidence of hardware retailers declined to its long-term average of 49 in 2021’s first quarter, from 64 in 2020’s fourth quarter.
“Most of the positive effect of working from home and increased disposable income – for those that managed to keep their jobs last year and did not take a pay cut- on hardware sales is likely behind us. Going forward, growth may come under pressure here too” cautioned Mkhwanazi.
“Non-residential building demand will only improve once the economy reopens fully, and we make greater strides toward population immunity against Covid-19. However, even then, the oversupply of existing stock, especially in the office segment, will take a very long time to correct. In the meantime, other parts of the building supply chain will continue to be negatively affected” he concludes.