News Research

Building activity up sharply in Q1 2023

The building sector is gaining momentum, albeit off a low base.

Sub-contractor confidence in prevailing business conditions recorded its highest level (57) in almost fifteen years in the FNB/BER Building Confidence Index for Q1 2023.

Sub-contractor activity fared exceptionally well this quarter, most likely off the back of household and business investment in alternative energy sources following the high degree of load-shedding for most of last year and so far in 2023,” remarks Siphamandla Mkhwanazi, Senior Economist at FNB.

Similarly, activity among main contractors rose significantly too however, confidence edged lower to 43. The latest data from Stats SA has revealed that, after falling by an average of 8% year-on-year during the first half of 2022, the real value of building investment rose by 2.8% and 4.2% year-on-year in Q3 2022 and Q4 2022.

It is becoming clearer that the recovery in building work is gaining traction. There are, however, two important nuances to this. Firstly, it comes off an extremely low base. Secondly, while activity was better in all provinces, the Western Cape seems to be faring disproportionately well. This is in step with the Western Cape property sector, which has benefitted from the semigration of individuals and businesses over the last few years,” says Mkhwanazi.

The pace of activity growth is expected to be maintained both in terms of the respondents’ own expectations and order books with the rating of insufficient new demand as a business constraint falling to its lowest level since 2008.

Due to weaker activity, the confidence of architects and quantity surveyors moved lower in 1Q2023. However, in both instances, the activity indices are broadly in line with their long-term averages.

With the Covid-induced work-from-home DIY boom having ended, sales among hardware retailers fell to well below its long-term average. This weighed on sentiment.

With household finances under strain due to the increased cost of living and higher interest rate environment, there seems to be little funds left over for DIY projects and upgrades, especially with some discretionary spending also having to go towards load-shedding mitigating measures.”

The business confidence of building material manufacturers fell to 6 in in Q1 2023, driven by weaker underlying fundamentals specifically a sharp rise in production costs.

The most important conclusion from the survey results this quarter is the continued rise in building activity. This is largely being supported by broad-based investment in load-shedding mitigation measures and energy self-generation, as well the continued robust demand in the Western Cape,” he says.

The better building activity is projected to continue into Q2 2023. However, the sustained resilience of this sector is not without downside risk. “Respondents remain concerned about the effects, including increased input costs, of load-shedding on their operations. Other constraints include the construction mafia and a lack of new work from, and inefficiency by, the state.”