Another bright turn for South Africa
The latest FNB/BER building confidence index has shown a 5-point improvement to 40 (from 35 previously), showing another positive turn for South Africa as sentiment continues its positive streak following the 2024 elections.
However, with the index still below 50, the majority of businesses and professionals are still dissatisfied with the prevailing business conditions in the country.
This broadly follows a similar path as consumer confidence in the country, with the Consumer Confidence Index also showing a positive turn but remaining in negative territory.
Nevertheless, the index’s turn is overall positive for South Africa, as it indicates that sentiment is shifting to a more hopeful and optimistic space.
The FNB/BER building confidence index can vary between zero (indicating an extreme lack of confidence) and 100 (indicating extreme confidence).
It reveals the percentage of respondents that are satisfied with prevailing business conditions in six sectors, namely architects, quantity surveyors, main contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters), manufacturers of building materials (cement, bricks and glass) and retailers of building material and hardware.
Looking at the specifics of the Building Confidence Index, the Bureau for Economic Research (BER) pointed to an upswing in four of the six sectors.
Compared to 2Q2024, the following changes to sentiment were registered:
- Building material manufacturers (+16);
- Architects (+12);
- Hardware retailers (+10);
- Sub-contractors (+3);
- Main contractors (-6); and
- Quantity surveyors (-10).
Despite a slight uptick in activity, main contractor confidence decreased to 41 in 3Q2024, from 47 in 2Q2024.
According to Statistics South Africa (Stats SA), the real value of residential building investment contracted by 7.3% year-onyear (y-o-y) in 2Q2024.
A much milder decline (of 3.7% y-o-y) was registered for non-residential investment.
“The latest survey results suggest that, at least in terms of work, non-residential builders continued to fare better than their residential building counterparts in 3Q2024, the BER noted.
According to Siphamandla Mkhwanazi, Senior economist at FNB, “the weakness in residential building activity reflects the downbeat trends in the housing property sector”.
Interestingly, the cessation of load shedding since March has reduced demand for residential energy installations, an important source of work for the sector in the recent past.
“Meanwhile, demand for non-residential buildings is faring better, but off a low base,” Mkhwanazi said.
While the results in terms of building activity this quarter were relatively mixed, especially when looking at the sub-sectors, work at the start of the building pipeline was much more upbeat.
The average activity indicator for architects rose to well above its long-term average, the BER said, and as a result, confidence was up.
“Given the level of activity, one would have expected confidence to rise by even more. However, respondents are increasingly concerned about the delays at municipalities regarding plan approvals which is hindering their progress on projects,” said Mkhwanazi.
Activity among quantity surveyors also moved higher, but confidence still shed 10 points.
Despite the mixed results in the sector, Mkhwanazi noted that the building pipeline suggests that there is good cause for optimism regarding the medium-term prospects for the building construction sector.
However, impediments—which include government delays and criminal mafias blocking projects—need to be addressed for a full turnaround to take root.
“While the outlook for activity is encouraging, a number of constraints continue to weigh on sentiment in the sector, such as delays in municipal approvals and crime and extortion—i.e. the construction mafia.
“These will need to be addressed to ensure that projects can progress and be completed on time and
within budget,” said Mkhwanazi.
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