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SA’s building industry is in dire straits

Sending confidence levels to record lows.
The state’s tendency to underspend on housing budgets means some R400m will be returned to National Treasury – while the housing backlog, estimated at up to 4m units, continues to grow. Image: Supplied

South Africa’s building industry is in dire straits, with confidence among major contractors declining to record low levels as a result.

The latest FNB-Bureau for Economic Research (BER) building confidence index released on Tuesday reveals that confidence declined in the third quarter to 35 index points on a 100-point scale from 39 in the second quarter of 2021.

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This means that across the building sector pipeline, 65% of respondents are dissatisfied with prevailing business conditions, said FNB/BER. Confidence among main contractors slipped to 18 in the third quarter from 22 in the second quarter.

FNB senior economist Siphamandla Mkhwanazi said sentiment in the building sector remains downbeat, which is partly due to the moderation in main contractor activity, resulting in profitability coming under noticeable strain.

However, Mkhwanazi said other factors not explicitly captured by the survey have also dampened sentiment.

“These include delays in the municipal approval of projects, the so-called ‘construction mafia’ and government inaction regarding the rollout of key building projects.

“This contrasts with the more upbeat results for the retail hardware sector. This, however, may not be sustained for much longer,” he said.

Double whammy

BER senior economist Craig Lemboe said business confidence in the construction industry has reached record low levels as the combined effect of the sector’s general state of decline and the unexpected shock of mass riots, which knocked business confidence hard in the third quarter of 2021.

Lemboe made this remark last week during a webinar on the role of construction in the economic recovery of South Africa, hosted by Construction Alliance South Africa (Casa).

“This is the lowest of all sectors, signifying deep concerns among respondents that business conditions in the construction industry are not conducive for the country’s planned infrastructure rollout programme,” he said.

Valid concerns

Participants in the webinar highlighted that the lack of business confidence among building contractors resulted from the absence of a sustainable pipeline of projects, slow movement in awarding contracts, unending extension of validity on submitted tenders and tender cancellations.

Read:

Casa chair John Matthews said the lack of a consistent flow of work is a key factor affecting building contractors.

“There are gazetted Strategic Infrastructure Projects that we still don’t know when they will go to tender or be awarded. This makes planning impossible,” he said.

Matthews added that while the building sector was not spared the impact of Covid-19 and the subsequent lockdowns, it was in a general state of decline prior to 2020 due to a number of issues, including a lack of work, low productivity, lack of innovation, the slow pace of transformation, industry disunity and corruption among others.

Mkhwanazi echoed these views on Tuesday, stating that the lower main contractor sentiment was underpinned by a slowdown in activity.

Pressure on profitability

However, Mkhwanazi said of greater concern is the more severe pressure on overall profitability.

He said the activity and profitability indices usually move together, and while this is still the case, the extent to which the profitability index declined has far exceeded that of activity over the past few quarters.

“This divergence suggests that contractors are unable to pass the higher input costs on to clients and seem to be absorbing these costs instead to maintain competitiveness,” he said.

Building plan approvals

Elsie Snyman, chief executive of construction industry market intelligence firm Industry Insight, said private sector building plan approvals over the past 12 months remain near record lows although there has been some improvement since 2020.

Snyman said the market is currently at 78% of levels reported between 2014 and 2018, which was already a dire situation.

“Approvals are currently on par with developments in the early 1990s, when the population was half of what it is now at around 40 million,” she said.

Snyman said the nominal value of building projects awarded in July 2021 was on par with the disappointing level in June 2021 and remained below R2 billion.

However, she said an unusually high 41% of awards did not have a published value, which could be a contributing factor.

Project cancellations

Snyman said cancellations remained high in July but continued to slow and ended on par with cancellations reported during May.

She said cancellations on average have improved compared to 2020 but concerningly remain about 160% higher than in 2019.

“A total of 22 building projects were cancelled, mainly within the non-residential sector. A total of 175 non-residential projects have thus far been cancelled in 2021 [first six months], down by 4% year-on-year.

“Over 60 housing projects have also been cancelled so far this year, with just over 60% relating to private housing projects,” she said.

Snyman said new Minister of Human Settlements Mmamoloko Kubayi announced that delivery of social housing will be accelerated and that the tendency to underspend on housing budgets must be rectified.

Housing backlog continues to grow

However, Snyman said about R400 million will again be returned to National Treasury in the 2020/21 fiscal year for not being spent, while the housing backlog continues to grow and is currently estimated at between 3.5 and 4 million houses and said to grow by 178 000 each year.

These views are in stark contrast to those of Minister of Public Works and Infrastructure Patricia de Lille, who told the National Council of Provinces last week that South Africa’s infrastructure drive to revitalise the economy and create employment is gaining momentum.

Read: SA’s infrastructure drive ‘is gaining momentum’

FNB/BER said the confidence of residential contractors is still low but vastly exceeds that of non-residential contractors while activity along the building pipeline also declined, with the confidence of architects dropping by five index points to 18 and quantity surveyors by the same margin to 21.

Sub-contractor confidence declined to 21 from 29 while confidence among building material manufacturers declined to 55 from 67.

Mkwanazi said the lower confidence of building material manufacturers was underpinned by weaker production and a worse-than-expected outcome for domestic demand.

Hardware retailers

Confidence levels among hardware retailers, after rising to 65 in the second quarter of 2021, improved by a further 12 index points in the third quarter to 77, the highest level since 2007.

Mkhwanazi said retail sales of hardware continue to surprise to the upside, boosting confidence, while higher selling prices have helped to lift profitability significantly.

“The factors driving hardware sales such as DIY projects, additions and alterations and the informal building sector may be running out of steam if the recent commentary by some of the larger listed firms [is] anything to go by.

“However, the third quarter survey results suggest nothing of the sort as yet,” he said.

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The chickens have come home to roost! Dodgy BEE tenders and an unimpeded Construction Mafia have finally destroyed ( at worst) or curtailed ( at best) the growth and future of this industry. Sadly,, another failure to lay at the feet of a fractured ANC government.

Terribly sad

I waited 11 years for documents to be signed by our Municipality, this after approval

On top of that, there is a surcharge from the Municipality of R100m2 on developed land (roughly R700 000/ha)

Add cost of land, interest, cost of time, useless deeds office dragging their feet and a lose of R100 mill to our Municipality ito rates and other charges in 11 years) not to mention the developers decline in profit, then one starts to realise why unemployment is where it is and the country a total failure under the ANC

And this is only one sector

Failed State is a complete understatement

I’m lost for words

When you take the corruption within ANC controlled municipalities, the red-tape and the incompetence, no wonder SA’s building industry is in dire straits.

Something has to give, and it is growth and investment.

“The slow pace of transformation” Actually the ANC managed to transform the construcrion as well as most other economic sectors into excrement rather rapidly.and with EWC upon us it qill.most likely accelerate over the next couple of months

Interestingly enough, the situation in the building industry, where formal projects are in systemic decline while the informal projects(DIY) are rising and actually flourishing, provides practical confirmation of the economic theory that socialism reverses economic development, deindustrializes the economy, changes a formal economy into an informal one, and stops and reverses the specialization of labor.

In laymen’s terms this means that under an ANC government, you have to be a Jack of all trades. You will have to build your own house and sewerage system, build your own roads, protect your own property, generate electricity, and fight for the opportunity to have a day job to finance your visits to Shoprite.

The ANC takes the economy, employment opportunities, and infrastructure back to a time before property rights arrived in South Africa. The unemployment rate, Debt/GDP ratio, and imploding municipalities are the logical consequences of socialist ANC policies.

This is textbook stuff, elementary! Then they have thousands of meetings and plans and promise to address these issues, while they only need to read one book.

https://youtu.be/9RMUMy7mNR0

This video by by After Skool clearly explains the what is happening.

The only positives we can draw from this is that there will come a time in point where the anc will be overthrown unfortunately it will have come a cost of suffering that has not yet been experienced…

True that, Sensei, except they cannot read, and sadly it’s not even a joke, we are in huge poo as a result!

They are too soft for this industry. You need bigger balls if you playing with big money.

With comments like this…Who wants to inform the empress that she has no clothes on. [Hans Christian Andersen’s story]

“These views are in stark contrast to those of Minister of Public Works and Infrastructure Patricia de Lille, who told the National Council of Provinces last week that South Africa’s infrastructure drive to revitalise the economy and create employment is gaining momentum.

Give her another vodka!

What else do you expect from Cadres?

Every so often the regime holds out ‘infrastructure’ like Charlie Brown’s football. The construction industry gears up and falls flat on its face when the ball gets snatched away.

They should know by now, ‘infrastructure’ is just look-busy talk.

The ineptitude of ANC government deserves no defense however with office vacancy at record high thanks to the china virus this is all no surprise.

This is not accurate, it is much worse than the Data suggests !!!

Clearly, when the Gov’t was claiming “shovel ready” infrastructure projects that will boost the economy. They were referring to the graves that would need to be dug and not actual construction projects!

End of comments.

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