Staff Reporter
Elevated living costs are expected to weigh on consumer demand, which in turn will impact the affordability for new building loans resulting in a further contraction of the construction industry. This is according to Simonis Storm (SS) stock brokerage which noted that post the pandemic, corporate mortgage loan growth trended down while household mortgage loan growth recovered steadily.
SS also noted that a 25bps rate hike is anticipated when the Bank of Namibia convenes on 14 June 2023. This would increase the repo rate to 7.50% and the prime rate to 11.25%. As a result, the average home loan interest rate will increase to about 12.25% (prime plus one).
The latest SS report shows that construction activities in Windhoek and Swakopmund experienced an approval contraction of 33.6% year-on-year (y/y) in April 2023. For the year-to-date (YTD), from January to April 2023, an average of 151 plans were approved per month, whereas for the same period last year, 214 plans were approved per month.
Construction is usually an excellent barometer of the strength of an economy and the latest report from Simonis Storm indicates a decrease in building plan approvals. This is partly explained by City of Windhoek receiving less plans as it received 191 plans on average per month, compared to 222 plans received on average per month for the same period last year.
“Building plan approvals have decreased by 33.6% y/y, from 283 plans in April 2022 to 188 plans in April 2023 for Windhoek and Swakopmund combined. The driver of this decrease is Swakopmund, decreasing by 53.7% y/y. Meanwhile, Windhoek experienced 23.4% less approvals in April 2023 compared to April 2022, with approvals decreasing from 188 to 144. However, on a monthly basis, Windhoek and Swakopmund’s approvals in building plans experienced a decline of 26.2% m/m and 32% m/m respectively, resulting in an overall decrease of 27.7% m/m,” the SS report reads.
The report also noted that building completions also remain on a downward trend. Completions decreased by 27.4% y/y in April 2023 compared to April 2022. Only 90 projects were completed, which is the lowest since July 2021 when only 43 buildings were completed across Swakopmund and Windhoek. These completions were concentrated in the residential segment of the market.
According to the report, the majority of building plan approvals in both Windhoek and Swakopmund were concentrated within the additions segment of the market, however, only composed 26% of the total value of plans approved. Notably, SS pointed out, 10 commercial and 70 residential plans were approved with the largest value of N$62 million and N$60 million respectively. The approvals amongst these three categories account for 97% of the total value of plans approved.
“In April 2023, there was a significant increase in the value of completed projects compared to March 2023, with a 48% m/m increase, albeit with only 90 projects completed (in both Windhoek and Swakopmund combined). It is uncertain whether this increase was due to large or value adding projects being completed, or if it was influenced by inflationary pressures. Of the N$94 million worth of completed projects in April 2023, N$75 million were residential, N$14 million were commercial, and N$5 million were additions. Lastly, the value of projects completed in April 2023 decreased by 19% y/y.”