First Capital’s building cost index indicates a year-on-year increase of 2.4% in March 2024, compared to the same period in 2023. Through the index, First Capital (FC), which tracks expenditure on building materials, indicated that in March 2024, building materials for a standard three-bedroom house increased to over N$312 000 during the first quarter of 2024 from just over N$304 000 in the corresponding quarter of 2023.
Through the analysis, FC aims to provide an accurate and informative insight into Namibia’s building cost landscape. The report covers the costs of various construction materials, from bricks, sand, cement and crushed stones to other raw materials such as iron, steel sheets and plumbing materials. FC compiles the index because the cost of building materials is a pivotal factor in the construction industry, directly affecting property development and infrastructure projects. Fluctuations in the cost of materials can impact construction expenses, potentially influencing housing affordability and the overall health of the real estate sector.
FC emphasised that government policies, global economic trends and supply chain dynamics contribute to interconnected elements, underscoring the need for a comprehensive understanding of the interplay between mortgage credit extension and the cost of building materials in a country.
FC Namibia is a premier financial services company specialising in treasury and investment management services. The company’s in-depth knowledge allows it to expertly manage Namibian assets across various spectrums. The company’s biannual report provides an in-depth analysis of trends in building material prices, and how these impact the cost of constructing a house in Namibia. This FC report captures the Building Cost Index, offering a comprehensive analysis spanning the periods before, during and after the influence of Covid-19 on construction costs.
By leveraging current information and leading indicators, FC provides a unique perspective on the likely cost of building materials in the short to medium-term. FC believes the index offers valuable insight to policymakers, contractors, mortgage lenders, investors and citizens.
The company’s biannual building cost index is compiled by a team of researchers, led by chief executive officer Martin Mwinga. FC compiles the building cost index because the primary determinant of a residential property’s construction expense in Namibia is the cost of building materials, which constitutes up to 60% of the overall expenditure.
The latest index shows that the increase has been predominantly influenced by the escalation in the prices of super bricks, which surged by 7%, as well as cement types 32.5 and 42.5, witnessing respective year-on-year price hikes of 1% and 2%. Moreover, FC noted that inflationary pressures on building materials are expected to continue throughout 2024, owing to increased demand for housing, boosted by the recent increased government subsidies for public sector employees.
“Specifically, the index reached its peak during the post-Covid-19 phase, with an index of 137 in March 2024. It was followed by the Covid-19 phase where the index recorded 117 in March 2021, and the lowest level was observed during the pre-Covid-19 phase, with an index of 95 in August 2018, and June 2019, respectively,” FC stated.
FC added that higher fuel prices present a significant challenge to the short to medium-term forecast of prices for building materials. “As fuel costs impact transportation and production expenses, they tend to exert upward pressure on the overall cost of construction materials. Consequently, this escalation in fuel prices may lead to increased operational costs for manufacturers and distributors alike, potentially resulting in higher prices for building materials,” the report cautions.
FC’s analysis in the report covers building cost estimations over time, including the cost of building materials, labour and urban land price movements, using a standard three-bedroom residential house structure as a basis for comparison. The Building Cost Index is derived from the weighted prices of building materials and labour, factoring in the contractors’ profit margin.
The house structure used in the FC report measures 76 square metres, and features specific architectural and design elements for consistency in the comparisons. Prices are collected from six geographically-diverse Namibian towns to provide a fair representation of the country’s construction cost landscape.
“Labour costs, traditionally charged based on the time taken to complete a task, are factored into our cost calculations. In line with industry standards, labour costs should not exceed 35% of the total cost of building materials. However, given our domestic experience where labour costs often exceed this benchmark, we have adjusted the labour cost to 40% of the total material costs, inclusive of the building contractor’s profit margin,” the FC report clarified.
Meanwhile, FC also provides a Land Cost Index, which is derived from the average unweighted prices of urban land. “For the purpose of comparison, we have used a standard land area of 375 square metres across all towns. To derive the land cost for comparison, we have multiplied the town-specific average price of land per square metre by this standard land area,” FC states.
The pricing of building materials in different municipalities in Namibia demonstrates marginal variations.
“Specifically, Rundu and Katima Mulilo exhibit higher costs at N$318455 and N$318 857, respectively. These elevated prices may be influenced by factors such as transportation expenses or local demand dynamics. In contrast, Swakopmund reflects a slightly lower cost at N$302 409, while Windhoek, Ondangwa and Keetmanhoop closely follow at N$301 066, N$303 580 and N$303 360, respectively. These discrepancies can primarily be attributed to variances in transportation costs required to facilitate the transfer of materials from primary suppliers to the respective towns,” FC said.
The report also pointed out that the highest cost for a standard plot is found in Windhoek at N$196 875, followed by Swakopmund (N$187 500), Keetmanshoop (N$46 125), Katima Mulilo (N$33 750), Rundu (N$31 500), and finally Ondangwa, where the cost stands at N$30 000.
The FC report states: “The dynamics of mortgage credit extension to both households and businesses play a crucial role in shaping the economic landscape of a country. The accessibility and affordability of mortgage credit impact the housing market, influencing individuals’ ability to purchase homes, and businesses’ capacity to invest in real estate. Favourable mortgage conditions can stimulate economic growth, while restrictive conditions may hinder development”.