The confidence of main contractors in the building industry improved significantly in the fourth quarter of 2021, driven by an increase in building activity and profitability.
The latest FNB-Bureau for Economic Research (BER) building confidence index report released on Tuesday said much of the improvement in main contractor activity and especially profitability was registered by non-residential builders, with their confidence rising to 33 index points on a 100-point scale in the fourth quarter from seven in the previous quarter.
This is the single biggest quarterly improvement since the 1980s, FNB-BER said.
Confidence among residential sector contractors was unchanged.
FNB senior economist Siphamandla Mkhwanazi said the bank has seen building activity improve gradually since the first Covid-19-related lockdown – but until now overall profitability has struggled to keep pace.
“The better conditions by way of profitability, more so than activity, lifted confidence.
“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,” he said.
Overall profitability among non-residential builders showed a marked improvement after remaining weak relative to activity since last year.
Mkhwanazi said builder input costs have risen much more than consumer and producer inflation of late because of a shortage of material supplies, and contractors have struggled to adjust tender prices accordingly, although there seems to be some reprieve this quarter.
Overall confidence down
The overall FNB-BER building confidence index, comprising six sub-sectors, declined by one index point to 34 in the fourth quarter.
FNB-BER said three of the sub-sectors registered higher confidence in the fourth quarter, but this was offset by a 34-index-point deterioration in the business mood of building material manufacturers.
It said underlying activity was broadly better, led by the non-residential building sector and the building pipeline, comprising architects and quantity surveyors.
Importantly, it added, there are signs that tendering competition is easing, which boosted profitability.
Master Builders South Africa (MBSA) executive director Roy Mnisi said feedback from members has been mixed and influenced by their location.
“There is a slight increase [in sentiment] from our members in the metropolitan areas because of a lot of projects they are bidding on from both the public and private sector.
“But we are still seeing a serious decline from our members in the small provinces in terms of economic spend because they are battling a lot in those areas,” he said.
Mkhwanazi said that while the recovery in other sectors of the economy is well underway following the slump in 2020, the building sector, as expected, has lagged.
“In addition, the uptick in non-residential building activity registered this quarter is likely to be temporary – possibly lasting into next quarter.
“That said, the results from the building pipeline are reason to be cautiously optimistic about the prospects for the sector next year although it is still too soon to tell for sure.
“Also, this trajectory could change should the macroeconomic environment underperform,” he said.
The business confidence of architects, supported by an improvement in activity, rose to 30 in the fourth quarter after decreasing to 18 in the previous quarter.
This was at its best level since the second quarter of 2015.
Mkhwanazi said that with such a significant uptick in activity, a higher rise in confidence would have been expected.
“However, a number of concerns, including delays in the awarding of tenders and the scarcity of high value projects, weighed on sentiment.
“Nonetheless, 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,” he said.
The business confidence of quantity surveyors declined to 18 index points despite higher activity levels.
A deterioration in production and domestic and export demand, together with higher production costs, resulted in the business sentiment of building material manufacturers more than halving to 21 in the fourth quarter from 55 in the previous quarter.
However, hardware retailer confidence remained very high at 77 index points as sales continued to improve, said FNB-BER.
“Against expectations, retail hardware sales have remained buoyant throughout the year.
“Given the restrained growth in activity among main and sub-contractors, the DIY and additions and alterations market, along with the informal building sector, are the main drivers,” Mkhwanazi said.
Private building activity
The business confidence of building sub-contractors rose to 30 in the fourth quarter from 21 in the previous quarter.
Construction market intelligence firm Industry Insight said last month (November) that in September the private building industry was operating at about 75% of its previous levels, which is very discouraging but very much in line with developments in the broader economy which is likewise struggling to recover to pre-Covid-19 levels.
Statistics SA reported that almost 700 000m2 of private buildings were completed in September, a 7.4% improvement compared with the previous month.
Industry Insight said activity levels in this segment had increased by almost 24% compared with September 2020 but noted that the sector was coming off a very low base in a pandemic-ravaged 2020 – and that an average of 940 000m2 was completed each month in 2019 before the pandemic and subsequent economic collapse.
It said the building-plans-approved data, which is a leading indicator of building in the pipeline, was more encouraging when compared with pre-Covid-19 levels.
The square metres of building plans approved in September increased by 4.7% compared with the previous month but has not reached pre-Covid-19 approval levels, with the overall square metres approved at 98% of 2019 levels.
“The big positive out of the data is that approvals for residential buildings continue to operate at higher levels than in 2019 … at 107% of average approvals, which is excellent and does show that there continues to be some pent-up demand within the residential market,” it said.
Industry Insight said the industrial space segment gave the rest of the non-residential industry a bit of hope with 140 000m2 of space approved in September.
But it said “a very dismal” 17 000m2 of office space and 10 000m2 of retail space was approved in the month, adding that office and retail space building plan approvals remain “at shocking levels”.