Household mortgage loan growth between January and August 2024 paints a gloomy picture, with a contraction of -2.9%, indicating that elevated debt levels and constrained disposable incomes continue to weigh heavily on consumers’ ability to respond to lower interest rates.
According to Simonis Storm, while the reduction in borrowing costs could theoretically improve housing affordability, the subdued growth in both corporate and household mortgage loans highlights that more favourable economic conditions or improved consumer and business confidence may be necessary to stimulate stronger demand in the property market.
Corporate mortgage loan growth averaged just 1.74%, suggesting that businesses remain cautious in property investments despite recent interest rate cuts. This conservative approach likely reflects broader economic challenges, including weak demand and the need to manage existing debt obligations, which may be tempering the expected stimulatory effects of lower borrowing costs on commercial real estate development.
September 2024 building statistics reveal substantial differences between Windhoek and Swakopmund, with a significant monthly decline in Windhoek’s building plan approvals, contrasting with a robust increase in Swakopmund. Windhoek’s approved building plans dropped by 35.14% m/m, decreasing from 222 in August to 144 in September. Swakopmund, on the other hand, experienced a strong recovery, with approvals surging by 57.81% m/m, from 64 to 101.
A significant portion of the approved building plans in both cities was concentrated in the residential segment. In Windhoek, 72% of approvals were for additions to existing residential properties, with 104 projects in this category. New housing developments accounted for 15% (21projects), while boundary walls represented 10% (14projects). Only 3% of approvals were for commercial developments. Key areas of activity in Windhoek included Khomasdal, KleinWindhoek, Otjomuise, and Okuryangava. In Swakopmund, 87% of all approved plans were for new residential projects, with 88 approvals. Institutional buildings accounted for 4% of approvals, while industrial and commercial buildings made up 2% and 5%, respectively. The building activity data suggests diverging trends between Windhoek and Swakopmund. Windhoek is experiencing short-term volatility, with a sharp monthly drop but a recovery in plan values, indicating large projects driving investment. Swakopmund, meanwhile, shows consistent monthly growth in both approvals and project value, signalling strong momentum in its residential and broader construction sectors.
“While we remain cautious about the overall recovery of the construction sector, we are excited about the opportunities ahead. The recent 25-basis point rate cut by the Bank of Namibia is a welcome step toward creating a more favourable environment for property financing, particularly in the residential segment. Although the current challenges in both corporate and household mortgage lending suggest that deeper structural issues persist, we expect that further rate cuts are on the horizon, offering additional relief and support for the sector.
Windhoek has demonstrated resilience, with a notable increase in building plan approvals and completions, especially in the residential sector. While the rise in project values has been modest, this growth reflects a cautious but optimistic approach by developers focusing on smaller, less capital-intensive projects,” said Simonis Storm.
With more rate cuts likely, further said that they anticipate that financing conditions will continue to improve, potentially unlocking further investment in both new developments and renovations.
“Swakopmund, meanwhile, faces more immediate challenges, with a decline in both approvals and completions. The weaker household mortgage loan growth and a more subdued construction environment indicate that recovery here may be slower. However, with additional rate cuts expected, we see room for improvement, particularly if broader economic conditions stabilize and credit extension picks up. Looking ahead, we believe that continued monetary easing will support a gradual but steady recovery in building activities, particularly in Windhoek’s residential segment, where demand for property improvements remains robust.
“As borrowing costs fall further, developers and homeowners will be better positioned to take advantage of more affordable financing, driving an eventual uptick in both small- and larger-scale projects. In summary, while we remain cautious about the pace of recovery in the construction sector, we are encouraged by the prospect of further rate cuts providing additional relief. With lower borrowing costs, we expect moderate but sustained growth in building activity through the remainder of the year and into 2025,” Simonis Storm said.