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Building confidence nosedives during Q1 2024 but architects indicate otherwise

Building confidence ‘nosedived’ during Q1 2024, according to the latest FNB/BER Building Confidence Index which measures sentiment in the building sector.

After rising to an eight-year high in Q4 2023, the FNB/BER Building Confidence Index fell by 16 points to reach a level of 27 in Q1 2024 – the joint lowest level since mid-2020.

The current level of the index means that more than 70% of those surveyed are dissatisfied with prevailing business conditions.

Alarmingly, most of the sub-sectors included in the index saw a marked fall in confidence. Relative to Q4 2023, building material manufacturers registered -29, building subcontractors (-25), architects (-25), and hardware retailers (-23). Main contractors and quantity surveyors recorded an uptick in confidence of 1 and 4 index points, respectively.

By far the biggest turnaround for the quarter was registered among architects whereas 54% of architects were satisfied with prevailing business conditions in Q4 2023, only 29% stated as such in Q1 2024 in line with a sharp deterioration in current as well as near-term outlook for activity.

The change in sentiment this quarter brings the level back to what it was in Q3 2023. It is easy then to claim that last quarter’s reading was an outlier. However, the trend in terms of activity was similarly volatile. This suggests that there may indeed have been a sudden, and unexpected, shift in architect work this quarter,” noted Siphamandla Mkhwanazi, Senior Economist at FNB. In contrast, quantity surveyor confidence increased (to 42, from 38 in Q4 2023).

Main contractor confidence increased marginally to 42 from 41 in Q4 2023 reflecting the trend with respect to overall activity. Looking closer, however, an improvement in residential building activity was partially offset by a somewhat weaker commercial building performance. Other indicators such as overall profitability and tendering competition, were broadly like Q4 2023. The indices measuring the constraints to business operations worsened, specifically that of insufficient demand (a proxy for order books) and the shortage of skilled labour which rose to an almost six-year high.

The survey among main contractors suggests that activity maintained its (weak) pace in Q1 2024. However, the deterioration in order books and the dire situation at the start of the building value chain suggest that activity may deteriorate over the short term,” said Mkhwanazi.

Also contributing to the lower overall sentiment are building material manufacturers (with confidence at 0) and hardware retailers (at 15). According to Mkhwanazi, “some of the listed hardware retailers have released poor company results recently and the confidence reading, and survey activity data align with that. It’s safe to say that the pressure on consumers’ income has had adverse effects on the demand for hardware”.

Growth in activity among building sub-contractors deteriorated, likely signalling a slowdown in demand for particularly electrical contractors that benefitted from residential and non-residential demand for energy installations. This, however, does not fully explain the significant fall in sentiment to 33, from 58 in Q4 2023.