South Africa’s ‘core’ building sector confidence index has achieved its best level since mid-2019, rising from 20 in Q3 2021 to 27 in Q4 2021, according to the FNB/BER Building Confidence Index.
Main contractor confidence jumped by 12 index points to 30 in Q4 2021, underpinned by an increase in building activity and profitability.
“We have seen building activity improve gradually since the first Covid-19-related lockdown, but until now, overall profitability has struggled to keep pace” commented Siphamandla Mkhwanazi, Senior Economist at FNB. “The better conditions by way of profitability, more so than activity, lifted confidence”.
Most of the improvement in activity and profitability was recorded by the commercial property building sector with contractor confidence rising to 33 from 7 in Q3 2021 – the single biggest quarterly improvement since the 1980s.
However, confidence in the residential property sector remain unchanged.
“There are indications from the survey that the rebuilding efforts following the social unrest in July continued into this quarter, even accelerating somewhat. Given that order books once again deteriorated, this is likely to be temporary,” noted Mkhwanazi.
Overall profitability among commercial property contractors showed improvement. “Due to a shortage of material and supplies, builder input costs have risen much more than consumer and producer inflation of late and contractors have struggled to adjust tender prices accordingly. There seems to be some reprieve this quarter”.
Architect confidence rose to 30 during Q4 2021, after its decrease to 18 in Q3 2021. The higher sentiment was supported by an improvement in activity which was at its best level since Q2 2015.
“One would expect that with such a significant uptick in activity, confidence would have risen by more. However, a few concerns, including delays in the awarding of tenders and the scarcity of high value projects, weighed on sentiment. Nonetheless, the results for architect activity are very encouraging and suggest that there is some building work in the pipeline, albeit in the form of many smaller projects,” said Mkhwanazi.
Quantity Surveyor activity was also higher but despite this, confidence retreated to 18.
However, building material manufacturer confidence more than halved to 21, from 55 in Q3 2021 with the decline in sentiment mainly due to the deterioration in production and domestic and export demand as well as higher production costs.
Hardware retailer confidence remained at a high 77 as sales continued to improve.
“Against expectations, retail hardware sales have remained buoyant throughout the year. Given the restrained growth in activity among main and sub-contractors, the DIY and additions / alterations market, along with the informal building sector, are main drivers”.
The business confidence of sub-contractors rose to 30, from 21 during Q3 2021.
In conclusion, the FNB/BER Building Confidence Index remained stable at 34 in Q4 2021, from 35 in Q3 2021 with three of the six sub-sectors registering higher confidence for the quarter. This was offset by a 34-index-point fall in the business mood of building material manufacturers.
Underlying activity was better, led by the commercial property building sector and the building pipeline with signs that tendering competitions is easing which has boosted profitability.
“While the recovery in other sectors of the economy following the slump in 2020 is well on the way, as expected, the building sector has lagged. In addition, the uptick in non-residential building activity registered this quarter is likely to be temporary – possibly lasting into next quarter. That said, the results from the building pipeline are reason to be cautiously optimistic about the prospects for the sector next year although it is still too soon to tell for sure. Also, this trajectory could change should the macroeconomic environment underperform,” concluded Mkhwanazi.