After having slipped by one point in the fourth quarter of 2022, sentiment in the building construction sector, as measured by the First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index, remained at 33 in the first quarter of this year.

The current level of the index means that almost 70% of respondents are dissatisfied with prevailing business conditions, the BER says.

In terms of the index subsectors, the following changes to confidence were recorded compared with the previous quarter – building subcontractors (+27), quantity surveyors (-2), main contractors (-3), hardware retailers (-4), architects (-8) and building material manufacturers (-14).

Subcontractor confidence registered a level of 57 in the period, the highest in almost 15 years. Underpinning the better sentiment was a sharp increase in activity, the BER notes.

“Subcontractor activity fared exceptionally well this quarter, most likely on the back of household and business investment in alternative energy sources following the high degree of loadshedding for most of last year and so far in 2023,” says FNB senior economist Siphamandla Mkhwanazi.

Similarly, activity among main contractors rose significantly in the first quarter. Confidence, however, edged lower to 43.

The latest data from Statistics South Africa (Stats SA) revealed that, after falling by an average of 8% year-on-year in the first half of 2022, the real value of building investment rose by 2.8% and 4.2% year-on-year in the third and fourth quarters of 2022, respectively.

This quarter’s survey results point to a continuation of this momentum in the first quarter.

“It is becoming clearer that the recovery in building work is gaining traction. There are, however, two important nuances to this. Firstly, it comes off an extremely low base.

Secondly, while activity was better in all provinces, the Western Cape seems to be faring disproportionately well. This is in step with the Western Cape property sector, which has benefitted from the semigration of individuals and businesses over the last few years,” explains Mkhwanazi.

Looking ahead, the pace of activity growth is expected to be maintained both in terms of respondents’ own expectations and order books.

Also highlighted was the rating of insufficient new demand as a business constraint, which fell to its lowest level since 2008.

Owing to weaker activity, the confidence of architects and quantity surveyors moved lower in the period. However, in both instances, the activity indices are noted to be broadly in line with their long-term averages.

With the Covid-19-induced work-from-home do-it-yourself (DIY) boom having ended, sales among hardware retailers fell to well below the long-term average, which weighed on sentiment.

“With household finances under strain due to the increased cost of living and higher interest rate environment, there seems to be little funds left over for DIY projects and upgrades, especially with some discretionary spending also having to go towards loadshedding mitigating measures,” Mkhwanazi comments.

The business confidence of building material manufacturers fell to six in the first quarter. This was driven by weaker underlying fundamentals, specifically a sharp rise in production costs.

The FNB/BER Building Confidence Index remained stable at a relatively low level of 33 in the period. The downbeat sentiment is said to reflect heightened pessimism among noncore building subsectors such as hardware retailers and building material manufacturers.

In contrast, the sentiment of main contractors is more or less at its long-term average, while that of building subcontractors is at a 15-year high.

“The most important conclusion from the survey results this quarter is the continued rise in building activity. This is largely being supported by broad-based investment in loadshedding mitigation measures and energy self-generation, as well as the continued robust demand in the Western Cape,” says Mkhwanazi.

The better building activity is projected to continue into the next quarter. However, the sustained resilience of this sector is not without downside risk.

“Respondents remain concerned about the effects, including increased input costs, of loadshedding on their operations. Other constraints include the construction mafia and a lack of new work from, and inefficiency by, the State,” outlines Mkhwanazi.