Red flags for property in South Africa

Recent data for the final quarter of 2022 from the FNB/BER Building Confidence Index showed that sentiment in the building construction sector slipped on the back of negative sentiment in specific sectors outweighing smaller positive gains.

Overall confidence dropped to 33 in the final quarter from 34 in the third before.

FNB said that this slight decrease indicates stability across the sectors as a whole; however, they are stable at a historically low level.

FNB senior economist Siphamandla Mkhwanazi said that mixed results from the building survey this quarter highlight the uncertainty of prospects in all sectors. He added that it is prudent to remain cautious about the outlook for 2023.

The FNB/BER building confidence metric considers the sentiment of building material manufacturers, main contractors, quantity surveyors, architects and more to establish an overall outline of the prospects for residential and commercial property developments in the country.

"After declining for the most part of the last few years, it seems as if building activity has finally stabilised."

"This does not necessarily mean that an expansion in building activity is on the cards for 4Q 2022, but rather that the decline should be less pronounced than in previous quarters," said Mkhwanazi.

FNB reported that there were significant changes in confidence in the third quarter.

Architects lost confidence in the building sector, dropping from 50 to 34 in the final quarter on the back of softer activity. Mkhwanazi said: "After improving consistently for most of the year, it is disappointing that architects reported lower activity growth this quarter. This goes counter to the better activity reported by main contractors."

Mkhwanazi said that architects revealed that the amount of work available for them in South Africa slowed further in the fourth quarter

He added that this trend was unexpected, given the consistent improvement in the building pipeline reported by respondents for much of 2022.

Confidence among hardware retailers also fell to 39, down 17. People in the sector expressed a downbeat business mood, with weaker retail hardware sales reflecting the pressure currently on consumer spending.

The business confidence of building sub-contractors also shed points, settling at 15 in Q4 2022 compared to 30 the quarter before, said Mkhwanazi.

Positive movements were reported in the overall sentiment of building material manufacturers (+20), main contractors (+17) and quantity surveyors (+9).

Despite fewer South Africans doing DIY or alterations to their property, building material manufacturers still showed confidence in the sector in Q4.

Business confidence for main contractors rebounded in the final quarter to 46. This came after a substantial 29-point fall in the third quarter.

The rebound, according to FNB, underpins the improved sentiment in building activity, predominantly among residential contractors.

"The residential building sector seems to be quite resilient despite several 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," said Mkhwanazi.

Non-residential contractors, however, reported a slowdown in building activity. Unlike architects, quantity surveyors reported higher confidence levels of 31.