Tough times for home builders in South Africa – BusinessTech
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Sentiment in the building sector remains depressed, with activity for residential builders hurt by low demand.
The FNB/BER Building Confidence Index increased from 27 in 1Q2024 to 35 in 2Q2024.
Nevertheless, the current index level means that 65% of respondents are still dissatisfied with current business conditions.
The improved confidence was seen across the entire building value chain, with the following changes:
- Hardware retailers (+32)
- Building main contractors (+5)
- Sub-contractors (+5)
- Quantity surveyors(+5)
- Architects (+4).
- Building material manufacturers (0)
The main contractor confidence increased to 43 due to a moderately higher workload.
“There is somewhat of a mismatch between the survey results and official data,” said Siphamandla Mkhwanazi, FNB Senior Economist.
“The latest Statistics South Africa data paints a dismal picture of the building sector, with the real value of investment in building construction down 15.4% on an annual basis in 1Q2024, from a 16% contraction in 4Q2023. The survey results are less downbeat.”
“Nonetheless, it is likely that building investment declined by less in 2Q2024.”
There was also a stark gap between the performance of residential and non-residential contractors in the quarter.
Although sentiment rose for both, residential contractors’ activity fared much worse than their non-residential counterparts, even though growth is in line with its long-term average.
“This divergence is expected given how the respective property sectors are performing, which is usually a precursor to building demand,” said Mkhwanazi.
“The residential property sector is still characterised by low demand and consequently very subdued house price growth.
“In contrast, office vacancy rates are gradually declining while the slowdown in the industrial property sector has stabilised.”
Notably, the building pipeline improved as measured by the architect activity, with it rising to 33.
Respondents see further acceleration in activity in 3Q2024.
Quantity surveyors are also upbeat about the next quarter, even if activity worsened somewhat in 2Q2024.
“Respondents noted a hesitancy by clients to commit to work until there is greater political certainty. More clarity in 3Q2024 could, therefore, see an increase in projects going forward,” said Mkhwanazi.
The main contributor to the overall lift was the hardware retailers index, with sentiment rising to 47—the highest level since 3Q2022.
Through the 32-index increase, it is now back in line with the long-term average.
The underlying data, especially activity, which was far higher, supported the improved business mood.
“It is difficult to consolidate this result with the broader economic environment, which has not improved materially since the last survey round.”
“The rebound in sales this quarter could be due to a combination of base effects – the hardware sector has fared dismally over the last few quarters – but also potentially some rebuilding work following storm and wind damage in the Western Cape last quarter.”
“Importantly, the better activity among main contractors could also have contributed to higher retail sales.”
The sentiment of building material manufacturers remained at 0 in 2Q2024 despite a rise in production volumes.
Read: What first-time homebuyers need to know about owning a home in South Africa
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