Sentiment in the building sector, as measured by the FNB/BER Building Confidence Index, rose to 40 from 34 in Q4 2021 – the highest confidence since early 2018. However, the ‘core’ building sector index, which excludes hardware retailers and building material manufacturers, was 31, from 27 in Q4 2021.
Main contractor confidence slipped to 25, from 30, in Q4 2021 but the underlying activity indicator remained relatively stable.
In contrast, confidence of building sub-contractors jumped by 17 index points to 47 – its best level since mid-2018. This improvement in business sentiment was underpinned by better activity.
“The results point to a strong showing in terms of smaller building projects, many of which would be considered alterations to existing structures rather than new buildings. This is why we are seeing more optimism from building sub-contractors than main contractors”, notes Siphamandla Mkhwanazi, Senior Economist at FNB.
In terms of the market segments, activity among commercial builders was better, boosting confidence. A similar, although more restrained trend, was observed in the residential sector.
“Anecdotally, the better sub-contractor activity can also be linked to the increase in the number of office-to-residential conversions and alterations to existing homes,” added Mkhwanazi.
While building activity is broadly higher, overall profitability is still under strain. “Profit margins are being negatively influenced by a range of factors largely outside the control of contractors. Among others, these include high and rising building material expenses and the cost of construction site interruptions”.
The building pipeline remained stable with quantity surveyor confidence edging only marginally higher to 20 while that of architects was unchanged at 30. “The upside is that there was clearly more interest this quarter as reflected by the sharp rise in activity among architects at the very start of the building pipeline, namely, projects at sketch plan phase. There are, however, many more steps, including the financing of the project, before a project can commence”.
Building material manufacturer confidence jumped to 55 in Q1 2022, returning the index to the level registered in Q3 2021. Production volumes on the other hand, faltered. Similarly, hardware retail sales declined in Q1 2022. This weighed on hardware retailer confidence, but, at 63, it is still well above the long-term average.
“After the initial lockdown in mid-2020, hardware retail sales rose significantly, spurred on by the DIY market. These results show that the home improvement need has largely been satisfied for those who had the funds and trading is back to normal,” he said.
The outlook is somewhat on the optimistic side. Not only are builders upbeat about the next quarter, the rating of new demand as a business constraint broadly eased. However, “if we look at the underlying survey data there is a clear recovery in building activity, especially smaller projects. While this is welcomed, in value terms, it may not be enough to boost the sector meaningfully. For a more sustained improvement, we need demand for new buildings to pick up from the current weak levels.”