South Africa may be nearing the end of a multi-year decline in building activity according to the FNB/BER Building Confidence Index which remained stable at 34 during Q3 2022 following a decline to 34 during Q2. ‘Core’ building sector confidence, which excludes building material and manufacturing and hardware retail sectors, rose to a more than four-year high of 37.
However, main contractor confidence lost all the gains registered in Q2 2022 largely due to a decline in sentiment among residential builders on the back of a slowdown in activity. According to Stats SA, the real value of residential building investment fell by 5% year-on-year in Q2 2022, suggesting that residential activity came under additional pressure during Q3 2022. “Growth in residential investment rebounded somewhat in 2021. It seems this momentum has stalled, even though the level of activity remains below where it was before the pandemic,” says Siphamandla Mkhwanazi, Senior Economist at FNB.
Commercial builder confidence jumped to a fourteen-year high, boosted by better activity and overall profitability. “Indicators from the property sector, particularly the office market with its high vacancy rates, do not support this rise in non-residential activity. Instead, it is likely that with more people returning to the office, there is a need to make changes to work spaces. Also, landlords and/or owners now have to see to building maintenance which they were able to delay for the past two years. This does not make for a sustainable building sector recovery, and it is likely why building sub-contractors – most affected by additions, renovations, and upkeep – fared especially well this quarter.” Sub-contractor confidence rose to 45 in Q3 2022 from 38.
The outlook for building activity improved, supported by two key developments; the percentage of builders that consider the lack of new building demand to be a constraint to business operations (a proxy for order books) declined to close to its long-term average and architect activity, which registered a broad-based increase.
For the past few quarters, architects have reported rising activity at the very start of their business pipeline. However, little flowed through to other workstreams, until now. “Work for architects increased noticeably this quarter, particularly in the areas closer to the completion or approval of a building plan. This is heartening, and while it is not a guarantee that the increased work experienced by architects will progress to the construction phase, it does increase the likelihood of a more meaningful uptick in building activity in the not too distance future,” said Mkhwanazi. Consequently, architect confidence rose to 50, from 31 in Q2 2022.
Activity among quantity surveyors faltered somewhat in 3Q2022 with confidence slipping to 22.
The business mood among building material manufacturers was at zero in 3Q2022, predominantly a result of a sharp fall in production and increased production costs. In contrast, hardware retailer confidence edged higher on the back of a mild improvement in sales.
