Building index shows mixed sentiment and some hope among South African builders

Building sentiment improved slightly in the first quarter from the last three months of 2024, but most builders remain dissatisfied with business conditions and municipal delays are hindering growth in the sector, according to the FNB/BER Building Confidence Index on Monday.

The index reading shows almost 60% of index respondents are dissatisfied with prevailing business conditions. Activity among non-residential builders continues to outperform that of residential builders, although both worsened somewhat.

“The industrial and warehousing sub-sector has held up well over the past few years, supporting at least some non-residential building work. Now, we are seeing signs that demand for retail space – and to a lesser extent, office and banking space – is picking up too, which further supports the non-residential outperformance,” said FNB senior economist Siphamandla Mkhwanazi.

The following changes to sentiment were registered in the index: hardware retailers (+9), quantity surveyors (+4), building sub-contractors (+3), building material manufacturers (-2), architects (-4), and main contractors (-6).

The index measuring activity among main building contractors also eased after registering a solid improvement in the 2024 fourth quarter. Consequently, overall profitability came under severe pressure. This weighed on sentiment, with the index losing six points to register a level of 45.

Statistics South Africa data shows that real expenditure on building investment declined 2.6% year-on-year (y-o-y) in the fourth quarter, largely due to an almost 6% y-o-y fall in real residential building investment, while real non-residential building investment increased 4.7% y-o-y.

Mkhwanazi said the residential sector was still struggling, despite the cumulative 75 basis points reduction in the repo – and prime rate – since the end of last year.

Building contractors were however optimistic about prospects for activity, employment, profitability, and general business conditions for the second quarter. “The risk exists that sentiment will fall further if these expectations do not materialise,” Mkhwanazi said.

The business confidence of building sub-contractors edged higher, largely due to higher activity. Architect confidence fell for a second consecutive quarter to 38, despite an uptick in activity. “Architects increasingly consider municipal inefficiency, such as delays in getting building plans passed and approved, as hindering business operations,” said Mkhwanazi.

Activity among quantity surveyors worsened, but confidence gained four points. At 59, hardware retailer confidence was at its highest level since the start of 2022 due to sales improvement. “The hardware component underperformed relative to other retail spending categories last year. However, sales over the last two quarters benefitted from the lower interest rate and inflation environment, and the financial windfall to households from the retirement reforms,” said Mkhwanazi.

The Absa Homeowner Sentiment Index, also released Monday, showed South African consumers are feeling upbeat, with confidence in the future of residential property climbing to 87% in the final quarter of 2024, the highest level in a decade, with the dominance of first-time buyers in the market relative to other segments an ongoing trend.

The Real Estate Investor publication cited Renier Kriek, MD at Sentinel Homes, saying the South African property market is seeing a surge in activity as economic conditions begin to stabilise and pent-up demand is being released. Kriek said a prime example of this was the 16.2% y-o-y  increase in home loan applications in December 2024, as reported by bond originator Ooba.

BUSINESS REPORT