The construction sector has continued its rampant decline with a weak pipeline and poor results for August 2023, research firm Simonis Storm has said.
The number of approvals decreased by 8.0% m/m, translating to a 15.7% y/y decrease in August 2023.
In essence, 2023, on average, records the lowest plans approved since 2020 which signals that the construction sector is contracting in Windhoek and Swakopmund. YTD, 20.6% less projects were approved compared to the same period last year and 3.6% less than 2020.
“Total plans approved have been trending well above the 6-month average since May 2023, which could be a signal that a slight expansion is about to take place albeit at a slow pace. Another contributing factor could be due to relatively low approvals over the past six months. The value of plans approved has seen a significant decline (down 71.0% y/y), driven by both the value of plans approved in Swakopmund (down 92.8% y/y) and Windhoek (down 61.7% y/y) in August 2023,” Simonis Storm said.
On a positive note, the value of projects completed saw an uptick in August 2023, driven by a higher value of projects completed in Windhoek (up 191.4% y/y), while Swakopmund weighed down on the growth (down 25.6% y/y) in August 2023. These two municipalities together recorded a combined value of N$147.9 million of projects completed, a combined increase of 89.1% y/y in August 2023.
“However, the number of projects completed in August decreased by 18.8% y/y, compared to an increase of 39.4% in the prior month. Windhoek – accounting for 72% of projects completed – decreased by 11.8% y/y, while Swakopmund – accounting for 28% of projects completed – decreased by 32.6% y/y in August 2023. Although the number of projects has decreased, this is a positive sign for construction because it indicates that bigger projects have been completed, contrary to the prior trends of more additions and alterations completed, which small, low-cost projects completed,” further stated Simonis Storm.
Credit for mortgages by businesses has decreased by 5.1% y/y and has increased by a meagre 2.9% y/y for households in July 2023.
“We maintain our assumption that the construction sector has shrunk due to poor demand for new buildings. This is evident by businesses being net repayors of their mortgage loans since mid-2022, indicating that new investments in buildings have been slow. The average mortgage loan demanded by businesses in 2023 so far is 9.1 percentage points lower than 2019, and 0.7 percentage points lower than 2020. In addition, tight financial conditions for households and businesses due to higher interest rates are leading to less demand for mortgage loans. While households remain net borrowers of mortgage loans, they mostly invest in small projects such as renovations or additions to their residential properties,” further explained Simonis Storm.
The firm went on to state that the construction sector, represented by the Construction Industry Federation (CIF), has advocated for the establishment of a sector regulator since 2008. The absence of such a regulator has led to several adverse outcomes. Additionally, some real estate agents argue that the absence of a building council hinders effective quality checks on small-scale developments, thereby negatively impacting the overall value of the country’s housing stock.
“The government had set a target of delivering 20,000 housing units by the end of 2025. However, it appears unlikely that this target will be met, given the current pace of construction by the National Housing Enterprise (NHE). 29% of this goal has been achieved, and the deadline is just two years away, as indicated on the Harambee Prosperity Plan website.
“Given this, the outlook on the construction sector remains bleak in the short-term. However, green hydrogen and the oil and gas boom should boost the construction sector in the medium- to long-term, especially in the areas such as Lüderitz and Oranjemund,” concludes Simonis Storm.