Sentiment in the construction sector in South Africa ended the year on a subdued footing as three sectors recorded sharply higher confidence while the other three saw a marked decrease in sentiment.
The FNB/BER Building Confidence Index slipped to 33 in the fourth quarter, from 34 in the third quarter, meaning it remained broadly stable at a historically low level for much of the year.
The index is compiled using surveys conducted by the Bureau for Economic Research (BER) at Stellenbosch University, on behalf of FNB, and it can vary between 0, indicating an extreme lack of confidence, and 100, indicating extreme confidence.
FNB said the sub-sectors that comprise the composite index all registered significant changes in confidence compared to the third quarter, with building material manufacturers, main contractors, and quantity surveyors adding to overall sentiment.
In contrast, confidence among hardware retailers, architects and building subcontractors was a drag on the overall business mood during the period.
Categorically, the business confidence of main contractors rebounded to 46 in the fourth quarter after falling to 29 in the third quarter.
Underpinning the improved sentiment was an improvement in building activity, predominantly among residential contractors.
FNB senior economist Siphamandla Mkhwanazi said the residential building sector seemed to be quite resilient despite a number of headwinds.
“That said, the momentum in activity is disproportionately clustered in the Western Cape. It is unlikely that this alone will be enough to support the sector going forward.”
Non-residential contractors reported a slowdown in building activity this quarter.
Mkhwanazi said the weaker outcomes for non-residential building activity were in step with the broader commercial property fundamentals, which include stubbornly high office vacancy rates and, more recently, an easing in building activity in the industrial and warehouse segment.
Other factors lifting main contractor confidence included a slight improvement in profitability, less keen tendering price competition and a lower rating for insufficient new demand as a business constraint.
The business confidence of architects, however, declined to 34 from 50 in on the back of softer activity.
“After improving consistently for most of the year, it is disappointing that architects reported lower activity growth this quarter,” Mkhwanazi said.
“This goes counter to the better activity reported by main contractors.”
On the other hand, activity among quantity surveyors was up, lifting their confidence to 31.
Confidence among hardware retailers fell to 39 as sales volumes remained on a downward trajectory, contributing to the downbeat business mood.
Mkhwanazi said the weaker retail hardware sales were largely a reflection of the pressure on consumer spending.
“With the Covid-19 surge in DIY and additions and alterations-related demand firmly over, the weaker financial position of households, as well as a switch to spending on services, is weighing heavily on this sector,” he said.
Somewhat linked to the softer retail demand were lower sales and production as reported by building material manufacturers, but their confidence moved higher to 20 in the fourth quarter.
The business confidence of building subcontractors shed 15 points to record a level of 30.
Mkhwanazi said that after declining for the most part of the past few years, it seemed as if building activity had finally stabilised.
“This does not necessarily mean that an expansion in building activity is on the cards for the fourth quarter, but rather that the decline should be less pronounced than in previous quarters,” he said.
“The somewhat mixed building survey results this quarter highlight how uncertain prospects remain in the sector. It is prudent to remain cautious about the outlook for 2023.”
BUSINESS REPORT