Sentiment in the residential property market in the Western Cape, one of the most expensive real estate regions, has remained subdued due to weak demand amid restrictive monetary policy that has diminished disposable cash.
This was revealed in the FNB/BER Building Confidence Index for the third quarter of 2023 released yesterday.
This comes as the South African Reserve Bank (SARB) has left interest rates at an elevated 8.25% per annum in spite of slowing consumer inflation towards the midpoint of the target range of 3% to 6%.
FNB senior economist Siphamandla Mkhwanazi said yesterday that although residential building activity also improved during the quarter, there were renewed concerns regarding the outlook.
Mkhwanazi said business confidence declined to its lowest level this year while the rating of the lack of new demand as a business constraint remained elevated.
“With the exception of some regions, mainly in the Western Cape, the residential property sector is struggling due to weak demand amid restrictive monetary policy,” Mkhwanazi said.
“As a result, while there is work currently, the appetite for new residential buildings is starting to diminish somewhat.”
The FNB/BER Building Confidence Index yesterday showed that the recovery in the building sector in South Africa was on track as sentiment moved higher on the back of better activity.
The index rose by six points to register a level of 34 in the third quarter, after slipping to 28 in the second quarter.
The current level of the index, however, remains in contractionary territory below 50 points that separates expansion from contraction, and means that more than 65% of respondents were dissatisfied with prevailing business conditions.
Mkhwanazi said activity in the non-residential building sector was improving faster than expected given the broader property market fundamentals, and contributed to better overall profitability.
He said the most notable development this quarter was the jump in sentiment of non-residential builders to 52 points, from 42 in the second quarter, continued activity growth and a marked improvement in profitability.
“The non-residential property market remains weak, characterised by, among other things, still high national office vacancy rates and constraints on the manufacturing and retail sectors, which drive demand for industrial and shopping space,” Mkhwanazi said.
“Despite this, new building activity is robust and order books are looking more promising. Several factors, including possible ongoing retrofitting of office space post Covid, and (the failure) to deal with the energy crisis, semigration of firms to the Western Cape, and low technical base effects are contributing to this resurgence in non-residential building activity.
“Overall, the building sector recovery remained on track in the third quarter. At this stage, the fortunes of non-residential builders seem to be improving more noticeably than that of residential builders.”
According to the index, the building material manufacturers’ confidence and the quantity surveyors’ sentiment gained 13 points, respectively, while architects and building sub-contractors gained seven points each, respectively.
However, the main contractors and hardware retailers’ confidence both declined by three points each.
Similarly, the core building confidence index, excluding building material manufacturers and hardware retailers, rose to 39 in the third quarter, reaching the best level since the second quarter of 2018.
The confidence of hardware retailers declined to 20 in the third quarter as sentiment has consistently moved lower since reaching 56 in the third quarter of last year.
Mkhwanazi said the downbeat mood is explained by a continued deterioration in sales. Sales orders, however, were somewhat better.
“The results from the hardware retailers are consistent with what listed companies are sharing regarding the state of the sector,” Mkhwanazi said.
“Consumers are under significant strain due to a number of factors. As a result, there is household substitution towards essentials, with hardware retailers disproportionately affected.”
BUSINESS REPORT