High interest rates to stifle construction industry

Namibia's construction industry is expected to remain depressed due to high interest rates, economic advisory firm Simonis Storm has warned.

This comes amid expectations that interest rates will increase by another 25bps if the Monetary Policy Committee (MPC) does not see monthly inflation data points moving closer to 6%.

Theo Klein, an economist with Simonis Storm, said the research firm expects that a rise in building material costs from last year and high interest rates will weigh on consumer demand for new building activity going forward.

Similarly, prospects for construction activity still look bleak as building plan approvals continue on a downward trend.

The building plan approvals declined in Windhoek by 53.5% y/y but rose sharply in Swakopmund by 110.0% y/y in January 2023.

On a monthly basis, approvals declined by double digits in January 2023 for both Windhoek and Swakopmund.

"Approvals were mainly for additions and new residential properties in both Windhoek and Swakopmund, with only 3 commercial plans approved in Windhoek and none in Swakopmund," reports Simonis.

Klein observes this is likely to keep revenues of local construction companies suppressed as smaller scale projects typically have smaller margins than larger scale projects in the commercial and industrial segments of the property market.

The value of approved plans totaled N$23.1 million in Windhoek compared to N$49.2 million in December 2022 and N$139.2 million in Swakopmund compared to N$53.8 million in December 2022.

In addition to pipeline activity, actual construction activity also remains on a declining path.

Building completions declined in both Windhoek declined 20.2% y/y and Swakopmund down 10.6% y/y during January 2023.

Building completions were mainly in the new residential and residential additions segment of the market in Windhoek, whereas new residential and commercial projects account for most of the completions in Swakopmund.

Klein noted that corporate entities have been net re-payers of mortgage debt since the pandemic.

"Remote working operational models have decreased the demand for office space and some corporates took advantage of low interest rates to repay debt faster. Following a short-lived increase in mortgages amongst corporates, most of 2022 saw corporates repaying their mortgage debt," he said.

On the other hand, he added that household mortgage growth has averaged a meagre 3.8% y/y on average in the last 3 years.

The Bank of Namibia has announced plans to come up with new policy measures to jump-start the construction sector which has experienced a significant slowdown in recent years.

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Last modified on Wednesday, 22 February 2023 20:33

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