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By: Nghiinomenwa Erastus

If you cut down trees to build your house traditionally, it will have long-term environmental damage. If you opt for a conventional brick and mortar house, be prepared to dig deep in your pocket.

All things constant, a time series analysis confirms that building materials prices have a pass-through effect on prevailing house prices.

An analysis was done by First Capital researchers in their quarterly House Building Cost Index, which was released early this year revealed.

The report monitor trends in the cost of building a house around the country.

The building cost inflation accelerated, further reaching 7,1% in December 2021, the 5-year highest price increase on building materials.

As a result, by the end of last year, those planning to build (using conventional materials) should budget at least N$267 538 by December 2021. With the latest inflation soaring, one needs to add more dollars.

Potential homeowners should be ready to spend N$102 737 on brickwork materials ( foundation and structure), while the roof and ceiling materials will cost around N$32 192.

For tilling materials, one needs around N$23 652. Adding in build-in-cupboards will require N$22 590 doors, and for windows materials, one needs to budget a minimum of N$15 349.

To electrify a 3-bedroom house, one needs to budget N$14 425 around for electrical materials.

By December 2021, the only house component commanded less than N$10 000 plumbing materials.

The researchers highlighted that considerable high inflationary pressures are observed on predominantly imported materials, a trend they attribute to being mainly due to supply disruptions compounded with rising global production costs.

The Building Cost index growth is expected to moderate, albeit at current elevated levels, primarily reflecting high prices of input materials and intermediate goods and the pandemic induced supply disruptions.

Building materials cost accounts for the highest share in building a house- on average, building materials account for more than 60% of the total cost for building a new residential home, First Capital report shows.

Broad-based elevated price pressures on building materials persisted for the entire second half of 2021, except cement price aligned to local demand fundamentals.

The researchers indicated that considerable high inflationary pressures are observed on predominantly imported materials (primarily electrical goods), which they attribute to being mainly due to supply disruptions compounded with global rising production costs.

The price of sand increased by 8,2% and 8,3% year on year (y/y) for building and plastering sand, respectively, in December 2021.

Environmental-related enforcement of sand mining regulations continues to trigger supply chain disruptions and remain a critical upside risk to sand price inflation.

Seeing a pass-through effect in terms of increased sand price inflation cannot be entirely ruled out with the recent and expected fuel price increases.

In December 2021, the prices of electrical goods were 8,9% higher compared to December 2020.

These materials are predominantly imported, and their domestic prices get the cue from a combination of domestic and international factors.

First Capital indicated that global production costs continue to increase mainly due to commodity and raw materials prices and rising labour costs.

Sharp price increases were further observed on plumbing and tilling materials that are equally import-dominated.

In the future, the stronger outlook of commodity prices amid the ongoing recovery and the weak domestic currency outlook pose an upside inflationary risk on these materials.

Cement prices remained subdued, posting a mild growth of 1,2% in December 2021(y/y).

The prices of super bricks were 4,7% up in December 2021 compared to December 2020.

The price changes of bricks largely reflect the average trend of sand and cement prices, the critical input components for producing bricks.

Among the material inputs for super bricks, sand prices went up by 8,2%, while cement prices remained steady with a marginal growth of 1,2%.

The average fuel cost, a proxy indicator of transport inflation, continues to rise and is expected to increase further as global geopolitics escalate.

Equally, transport services inflation from the NCPI is exhibiting a similar trend.

In the future, First Capital expects inflationary risks for bricks remain tilted to the upside mainly due to expected inflationary pressures on sand and transportation prices that could persist.

The cost of Building materials remains higher in northern parts of the country relative to central and southern regions.

The bill of quantity for building materials on a 3-bedroomed standard house using December 2021 prices recorded a combined average of N$268,302 in Katima Mulilo, Ondangwa, and Rundu.

While the exact materials averaged N$266 195 in Keetmanshoop, Windhoek, and Swakopmund, representing a variance of N$2 107 in the cost of building materials within these two geographic locations.

The total cost of building materials in Keetmanshoop is N$3 000 less than identical materials in Katima Mulilo.

First Capital’s researchers explained that the differences in building materials cost by town reflects varying prices due to supply sources that are largely unique to every town.

The price increase of building materials was lower in Swakopmund and Keetmanshoop relative to central and northern parts of the country.

A trend reflects the impact of transport costs on geographic areas distant from major imports entry points (southern borders with South Africa and the coastal port of Walvis Bay).

The team added that the persisting funding gap for land delivery and housing developments amid waning revenue collections and limited borrowing capacity of most local authorities calls for unconventional funding options that capitalise on these local authorities’ broader asset base.

On the other hand, interest rate trajectory amid limited fiscal support will present an uphill environment to sustain the ongoing recovery and repair of household indebtedness.

Overall, the First Capital outlook reflects various risks to the domestic currency outlook emanating from policy tightening in advanced economies, elevated input costs, and demand and supply mismatches.

Consequently, increasing transport cost (rising oil price) and domestic policy adjustments.

Julia Heita

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