Bad to worse for builders in South Africa

 ·11 Mar 2024

Businesses in South Africa’s building sector are bleak about the country’s prospects, with the latest FNB/BER Building Confidence Index for the first quarter of 2024 nosediving.

After rising to an eight-year high in 4Q2023, the index – which measures sentiment in the building sector – fell by 16 points to reach a level of 27 in 1Q2024.

This is the joint lowest level since mid-2020, the BER noted. The index was already in negative territory, with 50 reflecting neutral sentiment – anything above is positive, anything below is negative.

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

“Alarmingly, most of the sub-sectors included in the index saw a marked fall in confidence, the BER said.

Relative to 4Q2023, the following changes were registered:

  • Building material manufacturers (-29)
  • Building-subcontractors (-25)
  • Architects (-25)
  • Hardware retailers (-23)

Main contractors and quantity surveyors recorded an uptick in confidence of 1 and 4 index points, respectively.

By far the most significant turnaround this quarter was registered among architects, the BER noted.

Whereas 54% of architects were satisfied with prevailing business conditions in 4Q2023, only 29% stated as such in 1Q2024, 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 3Q2023. 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 that there may indeed have been a sudden, and unexpected, shift in architect work this quarter,” noted Siphamandla Mkhwanazi, Senior Economist at FNB.

By contrast, quantity surveyor confidence increased (to 42, from 38 in 4Q2023). Main contractor confidence increased marginally to 42, from 41 in 4Q2023.

“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,” the BER noted.

Other indicators, such as overall profitability and tendering competition, were broadly similar to 4Q2023, which also explains why confidence was little moved.

The indices measuring the 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 that activity maintained its weak pace in 1Q2024. However, the deterioration in order books and the dire situation at the start of the building value chain suggests that activity may deteriorate over the short term,” said Mkhwanazi.

Also contributing to the lower overall sentiment are building material manufacturers (with confidence at 0) and hardware retailers (at 15).

According to Mkhwanazi, “some of the listed hardware retailers have released poor company results recently and the confidence reading and survey activity data align with that. It’s safe to say that the pressure on consumers’ income has had adverse effects on the demand for hardware”.

Growth in activity among building sub-contractors deteriorated, likely signalling a slowdown in demand for particularly electrical contractors that benefitted from residential and non-residential demand for energy installations, the BER said.

This, however, does not fully explain the significant fall in sentiment to 33, from 58 in 4Q2023, it said.


While the fall in sentiment was broad-based, the BER said it is encouraging that main contractor confidence was higher, supported by somewhat better activity.

Looking ahead, however, the building sector will likely continue to underperform given that activity at the start of the building pipeline (i.e. 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,” it said.

According to Mkhwanazi, growth in the sector has cooled following the surge of building activity since 3Q2022 on the back of increased private investment in energy and the lagged effect of the relatively low interest rate environment in 2021 and 2022.

“These results suggest that a similarly weak performance is on the cards for 1Q2024,” he said.

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