Gloomy road ahead for construction

Tujoromajo Kasuto

Analysts have predicted pipeline construction activity will be less promising in 2022, as rising interest rates and the possibility of another 100bps repo rate hike before the end of the year that will put a strain on household budgets that are already stretched due to high food and fuel prices.

According to Simonis Storm Securities, Economist Theo Klein this will have a major negative impact on the middle income residential market.

‘’This could negatively impact buyer demand, especially in the low to middle income residential market. We do also expect demand for office/commercial property to be subdued owing to hybrid working arrangements with staff which requires less office space,’’ said Klein.

On the rental scene, the national average monthly rent increased from N$6,926 in March 2021 to N$6,964 in March 2022, according to FNB.

The FNB rental price index increased by 0.6 percent year on year in March 2022, compared to the Namibia Statistics Agency’s rental inflation of 1.4 percent year on year in March 2022.

Meanwhile, global house prices have risen significantly since the pandemic, with the IMF global house price index rising by 4.8 percent year on year in the second quarter of 2021. House prices are expected to fall as interest rates rise as advanced economies tighten monetary policy more aggressively.

However, Klein noted that ‘’house prices in Namibia have been declining during the same period, following a sharp spike in national house prices between June and November 2020. Since its peak in May 2021, the FNB house price index has decreased by 18 % y/y in May 2022’’.

This comes as local building material costs have also increased by 13.9% on average when analysing a basket of selected building materials; Gutters (77.7 percent year on year), steel door frames (33.3 percent year on year), roofing sink plates (16.3 percent year on year), and cement (10.5 percent year on year) are among the materials with the highest annual price increases,’’ said Klein.

Plumbers and electricians’ materials (pipe conduit and copper tubes) saw some of the lowest price increases in May 2022, rising by 0.3 percent year on year and 5.7 percent year on year, respectively.

According to inflation data from the NSA, price increases of products used for routine maintenance and repair of buildings remain elevated at 3.4% y/y in May 2022.

Prices for services of routine maintenance and repairs on the other hand have been declining since double digit highs last seen in 2019, rising only 5.4% y/y in May 2022.

By Observer