The FNB/BER Building Confidence Index fell dramatically in the first quarter of 2023 after rising to an eight-year high in the fourth quarter of last year.
FNB senior economist Siphamandla Mkhwanazi said yesterday the index had dropped by 16 points to reach a level of 27 in the first quarter of 2024, which was the joint lowest level since mid-2020.
The current level means more than 70% of respondents to the index survey are dissatisfied with business conditions.
Alarmingly, most of the sub-sectors in the index saw a marked fall in confidence. Relative to last year’s final quarter, the following changes were registered: building material manufacturers (-29), building subcontractors (-25), architects (-25) and hardware retailers (-23).
Main contractors and quantity surveyors recorded a slight uptick in confidence of 1 and 4 index points, respectively.
The biggest turnaround was registered among architects. Whereas 54% of architects were satisfied with prevailing business conditions in the fourth quarter of 2023, only 29% stated as such in the first quarter, in line with a sharp deterioration in the current as well as near-term outlook for activity.
“The change in sentiment brings the level back to what it was in the third quarter of 2023. It is easy then to claim that last quarter’s reading was an outlier.
“However, the trend in terms of activity was similarly volatile. This suggests there may indeed have been a sudden, and unexpected, shift in architect work this quarter,” said Mkhwanazi.
In contrast, quantity surveyor confidence increased to 42 from 38 in the fourth quarter of 2023.
Main contractor confidence increased marginally to 42 from 41. This largely stable sentiment reflected the trend on overall activity. An improvement in residential building activity was partially offset by a somewhat weaker non-residential building performance.
Other indicators, such as overall profitability and tendering competition, were similar to the fourth quarter of 2023.
Indices measuring constraints to business operations worsened, specifically that of insufficient demand (a proxy for order books) and the shortage of skilled labour which rose to an almost six-year high.
“The survey among main contractors suggests activity maintained its (weak) pace in the first quarter. However, the deterioration in order books and the dire situation at the start of the building value chain suggest activity may deteriorate over the short term,” said Mkhwanazi.
Also contributing to the lower overall sentiment of the index were building material manufacturers (with confidence at 0) and hardware retailers (at 15).
“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,” said Mkhwanazi.
Growth in activity among building subcontractors deteriorated, likely signalling a slowdown in demand for particularly electrical contractors that benefited from residential and non-residential demand for energy installations. This, however, did not fully explain the significant fall in sentiment to 33, from as high as 58 in the fourth quarter of 2023.
Mkhwanazi said while the fall in sentiment was broad-based, it was encouraging that main contractor confidence was higher, supported by somewhat better activity.
Looking ahead, however, the building sector would likely continue to underperform given that activity at the start of the building pipeline (i.e. architect and quantity surveyor activity) fared dismally, he said.
According to Statistics South Africa, the real value of investment in buildings contracted by an annual rate of close to 6% in the fourth quarter 2023.
“These results suggest a similarly weak performance is on the cards for the first quarter of 2024,” Mkhwanazi said.
BUSINESS REPORT