The FNB/BER Building Confidence Index dropped by 16 points to 27 in the first quarter of this year, from 43 in the fourth quarter of 2023, and four of the six sectors surveyed recorded a decline in sentiment of more than 20 points.

The drop of 16 points means the index is at the joint lowest level since mid-2020.

However, importantly, main contractor confidence ticked up marginally amid a stabilisation in activity.

“Looking ahead, there are signs, particularly from the building pipeline, that building activity growth will be under pressure in coming quarters,” financial services firm FNB said.

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

“Alarmingly, most of the subsectors included in the index saw a marked fall in confidence. Relative to the preceding quarter, building material manufacturers decreased by 29 points, building subcontractors were down by 25, architects down by 25 points and hardware retailers down by 23.”

Main contractors saw confidence increase by 1 index point and quantity surveyors recorded an uptick in confidence of four index points.

The largest turnaround during this quarter was registered among architects. While 54% of architects were satisfied with prevailing business conditions in the fourth quarter of 2023, only 29% expressed confidence during the first quarter of the year, 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 the third quarter of 2023, making it easier to claim that the fourth quarter’s reading was an outlier.

“However, the trend in terms of activity was similarly volatile. This suggests that there may have been a sudden and unexpected shift in architect work this quarter,” said FNB senior economist Siphamandla Mkhwanazi.

Conversely, quantity surveyor confidence increased to 42, up from 38 in the fourth quarter of 2023.

Main contractor confidence increased marginally to 42, from 41 in the preceding quarter. The largely stable sentiment reflects the trend with respect to overall activity. Looking closer, however, an improvement in residential building activity was partially offset by a somewhat weaker non-residential building performance, he said.

Other indicators, such as overall profitability and tendering competition, were broadly similar to the fourth quarter of 2023, which also explains why confidence was little moved.

Further, the indices measuring the constraints to business operations worsened, specifically those that reflect insufficient demand, and which are a proxy for order books, and the shortage of skilled labour, which rose to an almost six-year high, he noted.

“The survey among main contractors suggests that activity maintained its weak pace in the first quarter of the year. 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 zero and hardware retailers at 15 index points.

“Some of the listed hardware retailers have released poor company results recently and the confidence reading, and survey activity data, align with that. The pressure on consumers’ income has had adverse effects on the demand for hardware,” he added.

Additionally, growth in activity among building subcontractors 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 the fourth quarter of 2023, he said.

However, while the fall in sentiment was broad-based and declines were noticeable where registered, it was encouraging that main contractor confidence was higher, supported by somewhat better activity, Mkhwanazi said.

Looking ahead, the building sector will likely, however, continue to underperform given that activity at the start of the building pipeline, namely architect and quantity surveyor activity, fared dismally.

That growth could be weaker going forward is also supported by the increase in new building demand as a business constraint, he added.

“There was a surge of building activity since the third quarter of 2022 on the back of increased private investment in energy and the lagged effect of the relatively low interest rate environment in 2021 and 2022.

“Growth has since cooled. The real value of investment in buildings contracted by an annual rate of close to 6% in the fourth quarter of 2023.

“These results suggest that a similarly weak performance is on the cards for the first quarter of this year,” said Mkhwanazi.