FNB Building Confidence Index ends the year on soft footing

SENTIMENT in the construction sector in South Africa ended the year on a subdued footing as three sectors recorded sharply higher confidence while the other three saw a marked decrease in sentiment.

The FNB/BER Building Confidence Index slipped to 33 points in the fourth quarter, from 34 points in the third quarter, meaning it remained broadly stable at a historically low level for much of the year.

The index is compiled using surveys conducted by the Bureau for Economic Research (BER) at Stellenbosch University, on behalf of FNB, and it can vary between 0 points, indicating an extreme lack of confidence, and 100 points, indicating extreme confidence.

FNB said the sub-sectors that comprise the composite index all registered significant changes in confidence compared to the third quarter, with building material manufacturers, main contractors, and quantity surveyors adding to overall sentiment.

In contrast, confidence among hardware retailers, architects and building subcontractors was a drag on the overall business mood during the period.

Categorically, the business confidence of main contractors rebounded to 46 points in the fourth quarter after falling to 29 points in the third quarter.

Underpinning the improved sentiment was an improvement in building activity, predominantly among residential contractors.

FNB senior economist Siphamandla Mkhwanazi said the residential building sector seemed to be quite resilient despite a number of headwinds.

“That said, the momentum in activity is disproportionately clustered in the Western Cape. It is unlikely that this alone will be enough to support the sector going forward.”

Non-residential contractors reported a slowdown in building activity this quarter.

Mkhwanazi said the weaker outcomes for non-residential building activity were in step with the broader commercial property fundamentals, which include stubbornly high office vacancy rates and, more recently, an easing in building activity in the industrial and warehouse segment.

Other factors lifting main contractor confidence included a slight improvement in profitability, less keen tendering price competition and a lower rating for insufficient new demand as a business constraint.