Sentiment in the building sector, as measured by the FNB/BER Building Confidence Index, has been stable, albeit at a relatively low level, for the past few quarters. However, in the second quarter of this year, the index fell to 28, from 33 in the first quarter.
The current level of the index means that more than 70% of respondents are dissatisfied with prevailing business conditions.
Underpinning the lower sentiment was a decline in main contractor activity, as well as continued weaker hardware retailer sales. Of additional concern is the broad-based expectation that activity and sales will likely come under further pressure over the short term.
In contrast, activity at the start of the building pipeline improved. Subcontractor activity also remained robust amid the private sector’s push for energy independence.
Confidence among building material manufacturers increased by seven points. Confidence among quantity surveyors and architects, however, decreased by three points each, while confidence among hardware retailers decreased by 13 points and among building subcontractors by 17 points.
The confidence of main contractors was unchanged.
The index measuring activity among main contractors gained momentum towards the end of last year and the start of this year, which lifted sentiment to around the long-term average.
However, activity growth eased sharply in the period.
Confidence, however, stayed at 43.
“One of the primary factors supporting the rise in activity in the recent past was the resurgence in building work in the Western Cape. This is starting to wane in the face of the higher interest rate environment and possibly also an easing in the pace of semigration, among other things,” says FNB senior economist Siphamandla Mkhwanazi.
In addition to the softer growth this quarter, prospects for building work over the next few quarters also turned negative.
Both forward-looking indices – respondents’ own expectations for activity next quarter and the rating of the lack of new demand as a business constraint (a proxy for order books) – worsened significantly in the quarter.
“In sum, the results of this quarter’s survey suggest that the robust momentum in main contractor activity seen in the recent past was short-lived,” says Mkhwanazi.
While activity among main contractors receded this quarter, activity among subcontractors remained well supported. Despite this, sentiment declined to 40, from 57 in the first quarter.
“Subcontractors continued to benefit from work related to alternative energy sources this quarter. However, there is an expectation that work will not be as abundant in the third quarter, which weighed on confidence,” states Mkhwanazi.
Architect activity showed a marked improvement this quarter. Despite this, confidence was lower at 23, from 26 in the previous quarter.
Similarly, the business confidence of quantity surveyors was lower at 26 (from 29 in the first quarter) despite a mild uptick in activity.
After slipping to 35 in the previous quarter, sentiment among hardware retailers fell further to 22 in the period. This is the lowest confidence has been since the second quarter of 2020.
“Retail sales volumes remained under significant pressure, which weighed heavily on profitability. Moreover, the outlook for sales is downbeat with the index measuring sales orders also weakening significantly. All of these factors considered, it’s no wonder their confidence declined,” Mkhwanazi avers.
The confidence of building material manufacturers increased to a still low 13, from six in the previous quarter.
“Overall, while we are still convinced that the building sector bottomed sometime in the middle of last year, the momentum eased in the second quarter of this year. This is most evident given the moderation in activity growth among main contractors, especially those operating in the Western Cape,” says Mkhwanazi.