After slipping to 35 in the third quarter of this year, the First National Bank (FNB)/Bureau for Economic Research (BER) Building Confidence Index was marginally lower, at 34, in the fourth quarter.
Confidence in the core building sector index, excluding the hardware retailers and building material manufacturing sector, rose from 20 to 27 during the same period and, although still low, this is the best level since the second quarter of 2019.
Main contractor confidence jumped by 12 index points to 30 in the fourth quarter – underpinned by an increase in building activity and profitability.
“We have seen building activity improve gradually since the first Covid-19-related lockdown, but until now overall profitability has struggled to keep pace,” says FNB senior economist Siphamandla Mkhwanazi.
He explains that improved profitability, more so than activity, lifted confidence.
Much of the improvement in activity and especially profitability was registered by non-residential builders. As such, their confidence rose from 7 to 33 – the single biggest quarterly improvement since the 1980s.
However, for the residential sector, confidence was unchanged. “There are indications from
the survey that the rebuilding efforts following the social unrest in July continued into this quarter, even accelerating somewhat. Given that order books, once again, deteriorated, this is likely to be temporary,” says Mkhwanazi.
After remaining weak relative to activity since 2020, overall profitability among non-residential builders showed a marked improvement.
Owing to a shortage of material supplies, he says builder input costs have risen much more than consumer and producer inflation of late and contractors have struggled to adjust tender prices accordingly. “There seems to be some reprieve this quarter.”
After decreasing to 18 in the third quarter, architect confidence rose to 30 in the fourth quarter; while the higher sentiment was supported by an improvement in activity, which was at its best level since the second quarter of 2015.
Further, noticeably higher activity was a feature across the various classes of work.
“One would expect that with such a significant uptick in activity, confidence would have risen by more. However, a number of concerns, including delays in the awarding of tenders and the scarcity of high-value projects, weighed on sentiment,” says Mkhwanazi.
Nonetheless, he says the results for architect activity are “very encouraging” and suggest that there is some building work in the pipeline, albeit in the form of many smaller projects.
Meanwhile, although quantity surveyor activity was higher, its index retreated to 18.
The confidence of building material manufacturers more than halved to 21, from 55 in the third quarter – mainly a result of a deterioration in production and domestic and export demand, as well as higher production costs.
Hardware retailer confidence remained high, at 77, as sales continued to improve.
“Against expectations, retail hardware sales have remained buoyant throughout the year. Given the restrained growth in activity among main and subcontractors, the do-it-yourself and additions and alterations market, along with the informal building sector, are the main drivers,” says Mkhwanazi.
The business confidence of building subcontractors rose to 30, from 21 in the third quarter.
Three of the six subsectors registered higher confidence in the quarter. This was offset by a 34-index-point fall in the business mood of building material manufacturers.
Underlying activity was broadly better, led by the non-residential building sector and the building pipeline (architects and quantity surveyors); as well as signs that tendering competition is easing which boosted profitability.
“While the recovery in other sectors of the economy following the slump in 2020 is well on the way, as expected, the building sector has lagged. In addition, the uptick in non-residential building activity registered this quarter is likely to be temporary – possibly lasting into next quarter,” he says.
Mkhwanazi adds that the results from the building pipeline are reason to be “cautiously optimistic” about the prospects for the sector in 2022, although he says “it is still too soon to tell for sure”.
Furthermore, this trajectory could change should the macroeconomic environment underperform,” concludes Mkhwanazi.