Sentiment in the building construction sector, as measured by the FNB/BER Building Confidence Index, slipped to 33 in 4Q2022, from 34 in 3Q2022.
This means that the index has been broadly stable – at a historically low level – for much of the year.
The sub-sectors that comprise the composite index all registered significant changes in confidence compared to 3Q2022. Adding to overall sentiment were building material manufacturers (+20), main contractors (+17) and quantity surveyors (+9). In contrast, confidence among hardware retailers (-17), architects (-16) and building sub-contractors (-15) was a drag on the overall business mood.
After falling to 29 in 3Q2022, the business confidence of main contractors rebounded to 46 in 4Q2022. Underpinning the improved sentiment was an improvement in building activity, predominantly among residential contractors.
“The residential building sector seems 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 with be enough to support the sector going forward” remarked Siphamandla Mkhwanazi, Senior Economist at FNB.
Non-residential contractors reported a slowdown in building activity this quarter. According to Mkhwanazi, “the weaker outcomes for non-residential building activity are in step with the broader commercial property fundamentals which include still-high office vacancy rates and, more recently, an easing in building activity in the industrial and warehouse segment”.
Other factors lifting main contractor confidence include a slight improvement in profitability, less keen tendering price competition and a lower rating of insufficient new demand as a business constraint. The latter points to reasonably upbeat prospects for building activity in 2023.
The business confidence of architects declined to 34, from 50 in 3Q2022 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. This goes counter to the better activity reported by main contractors,” said Mkhwanazi.
On the other hand, activity among quantity surveyors was up, lifting their confidence to 31. Confidence among hardware retailers fell to 39 in 4Q2022. Sales volumes remained on a downward trajectory, contributing to the downbeat business mood.
In Mkhwanazi’s opinion, “the weaker retail hardware sales are 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”.
Somewhat linked to the softer retail demand are lower sales and production as reported by building material manufacturers. Nonetheless, their confidence moved higher to 20 in 4Q2022. The business confidence of building sub-contractors shed 15 points to record a level of 30 in 4Q2022.