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The Construction Sector Outlook Remains Bleak

By:Hertha Ekandjo
The construction sector remains bleak, with poor approval and completion results for the year thus far compared to the same period during the pandemic year 2020.
According to Simonis Storm Securities (SSS), this has made it likely for the sector to expect the sixth consecutive contraction in the real value of building plans approved and completed sub-sector of the construction sector GDP in Q2 2023.
SSS says the bleak construction sector activity is detrimental to the country’s employment rate as many unskilled labourers are employed in this sector.
Year-to-date, the Windhoek and Swakopmund municipalities have approved 1,538 plans which are 2.5% fewer in 2023 compared to the same period in 2020 during which 1,577 plans were approved.
For the same period, projects completed decreased by 47.4% since 2020.
“This is the third consecutive year that the number of projects completed has declined during this period. A total of 275 plans were approved in July 2023 compared to 340 plans in July 2022, translating to a 19.1% year to year decrease. On the brighter side, the number of projects completed in July 2023 increased by 39.4% y/y from 137 projects completed in July 2022 to 191 projects completed in July 2023,” the report highlighted.
Furthermore, SSS says the value of approvals remains on a steady increase, but the value of projects completed spiked in July 2023. The value of the projects approved by these municipalities have decreased in Windhoek decreased by 73.7% y/y, but increased in Swakopmund increased by 113.6% y/y.
According to the report, this is due to 48 projects being completed in July 2023 in Windhoek, compared to 80 in July 2022, while in Swakopmund 149 projects were completed in July 2023 compared to 49 projects in July 2022.
“This is the highest number of projects that Swakopmund has completed since our data series started and 109 of these projects were completed by the Ministry of Urban and Rural Development, with an average value of N$198,322 per project at an average size of 46 square metres,” SSS reported.
Current homeowners and building owners are experiencing lower cost increases. The annual increase in costs of regular maintenance of buildings has subdued, posting an inflation rate of 3.1% y/y in July 2023, compared to the 6.2% average for 2022.
Furthermore, it has been reported that the disinflation of services for maintenance was the main driver of lower inflation rates, recording 1.5% y/y inflation rate in July 2023 compared to its 12.6% y/y peak in November 2022.
SSS mentioned that the prices of products required for maintenance recently peaked in May 2023, increasing by 8.3% y/y but have too shown disinflationary signs, posting an inflation rate of 4.0% y/y in July 2023.
“We assume that the construction sector has shrunk due to poor demand for new buildings. Poor demand is reflected in the fact that we observe a decrease in the number of building plans being submitted for approval. In addition, tight financial conditions for households and businesses due to higher interest rates are leading to less demand for mortgage loans,”SSS noted.
Businesses have been net re-payers of their mortgage loans since September 2022, indicating that new investments in buildings have been slow.
While households remain net borrowers of mortgage loans, they mostly invest in small projects such as renovations or additions to their residential properties.
In a significant shift, the report pointed out, the First National Bank House Price Index, which has been consistently negative since May 2022, experienced a rebound in March 2023, entering positive territory for the first time in almost a year.
“This positive turnaround brings renewed hope to homeowners, investors, and industry professionals, signaling potential improvements in the housing market and the broader economic landscape.
“Indeed, engagements from real estate agents indicate that demand has improved significantly both for property purchases and rentals,” SSS stated.
Demand is driven primarily by locals, but also by foreign nationals from Germany, the US and South Africa.

Hertha Ekandjo

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