The construction sector continues to face challenges after it recorded its fifth consecutive quarterly decline in the third quarter of last year, contracting by 10.0% year on year (y/y) in 3Q2022.
According to Simonis Storm analysts, construction companies were forced to diversify their business activities due to the scarcity of work available. They are also of the view that this downward trajectory is likely to continue.
“Growth in this sector is likely to remain weak until government’s green hydrogen project commences in the South, until municipalities are able to increase supply of serviced land and until we reach a point where public finances improve and allow fiscal space for government to restart certain construction projects,” Simonis Storm’s Theo Klein said.
Local construction companies’ profits have also been under pressure as smaller scale projects take precedence in the absence of large scale projects. In addition, competition remains fierce, where local construction companies compete against foreign companies more intensely in public tenders.
Klein siad this has led small and medium sized enterprises (SMEs) in the construction sector to close down all together.
“If government does not respond to private sector requests of having a regulatory body in the construction sector, we do not see these challenges being resolved and so the growth outlook on construction looks bleak. Lastly, higher interest rates and a double digit increase in building material prices are expected to delay the commencement of construction of buildings for which plans are currently being approved,” he said.
The City of Windhoek only managed to approve 121 building plans during December 2022, compared to the 204 in November, a 40.7% month on month (m/m) drop. This is, however, a 15.2% y/y increase when compared to the 105 building plans that were approved in December 2021.
The approved plans in December 2022 have a total value of N$49.2 million (compared to N$134.9 million in November 2022) and include 83 plans for new residential additions, 24 for new residential properties, 11 for walls and 3 for new commercial buildings. Building completions remained flat in the second half of 2022.
“During December 2022, 81 building completions took place, compared to 89 completions in the prior month and 67 in December 2021. The completed projects had a total value of N$39.6 million (compared to N$52.7 million for projects completed in the prior month) and included 69 residential properties, 10 residential additions, and two walls,” Klein said.
Meanwhile, the Swakopmund Municipality approved 70 building plans during December 2022, compared to 63 in the prior month. This is an 11.1% m/m increase, but a 27.1% y/y decline when compared to 96 approved building plans in December 2021.
“Approved plans have a total value of N$53.8 million (compared to N$77.6 million in the prior month), with 62 plans for new residential properties, 4 plans for industrial buildings, 2 plans for residential additions, one plan each for institutions and commercial buildings.”
Building completions marginally rose to 47 in December 2022 from 46 in November 2022 for the coastal municipality with a total value of N$17.9 million. Completions were focused in the residential segment of the market, with 27 completions being recorded for new residential properties, 11 for residential additions, 7 for industrial buildings and one each for new flats and commercial buildings.
“Pipeline building activity remains focused on residential properties. More specifically, building plan approval rates are much higher for residential additions than new residential properties. These types of projects are typically on a smaller scale and would not yield sufficient profits for large-scale construction companies. Hence, either profit margins must be sacrificed to pursue these smaller projects or alternative business operations have to be adopted. From our conversations with certain local companies, it seems a combination of these are currently being considered,” Klein said.