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Construction records fifth consecutive quarterly decline

2023-01-26  Staff Reporter

Construction records fifth consecutive quarterly decline

The domestic construction sector recorded its fifth consecutive quarterly decline during the third quarter of 2022, contracting by 10.0% year-on-year (y/y). 

 According to local stock brokerage, Simonis Storm (SS), growth in this sector is expected to remain weak until government’s green hydrogen project commences in the south of the country – at least until municipalities are able to increase supply of serviced land and until a point is reached where public finances improve and allow fiscal space for government to restart certain construction projects.  In its latest building statistics report for December 2022, SS points out that local construction companies had to diversify business activities, as pipeline work remains subdued. “Profits have also been under pressure as smaller scale projects take precedence in the absence of large scale projects. In addition, competition remains fierce, where local construction companies compete against foreign companies more intensely in public tenders. This has led small and medium sized enterprises (SMEs) in the construction sector to close down all together,” the SS report states. SS further cautioned that if government does not respond to private sector requests of having a regulatory body in the construction sector, it does not see these challenges being resolved, and so the growth outlook on construction remains bleak.  In addition, SS expects higher interest rates and a double-digit increase in building material prices to delay the commencement of construction of buildings for which plans are currently being approved.

During December 2022, City of Windhoek approved 121 building plans, compared to 204 in the prior month, a decrease of 40.7% month on month (m/m) and 105 in December 2021, which was an increase of 15.2% y/y. 

Approved city plans in December 2022 have a total value of N$49.2 million, compared to N$134.9 million in November 2022, and they include 83 plans for new residential additions, 24 for new residential properties, 11 for walls and three for new commercial buildings. 

Meanwhile, building completions remained somewhat flat during the second half of 2022. During December 2022, 81 building completions took place, compared to 89 completions in the prior month and 67 in December 2021.  The completed projects had a total value of N$39.6 million, compared to N$52.7 million for projects completed in the prior month, and included 69 residential properties, 10 residential additions and two walls.  As the coast the Swakopmund municipality approved 70 building plans during December 2022, compared to 63 in the prior month (↑ 11.1% m/m) and 96 in December 2021, representing a decrease of 27.1% y/y. 

Approved plans have a total value of N$53.8 million, compared to N$77.6 million in the prior month, with 62 plans for new residential properties, four plans for industrial buildings, two plans for residential additions, and one plan each for institutions and commercial buildings.  Building completions marginally rose to 47 in December 2022 from 46 in November 2022, with a total value of N$17.9 million. 

Swakopmund completions were focused in the residential segment of the market, with 27 completions being recorded for new residential properties, 11 for residential additions, seven for industrial buildings and one each for new flats and commercial buildings. SS pointed out that pipeline-building activity remains focused on residential properties. 

“More specifically, building plan approval rates are much higher for residential additions than new residential properties. These types of projects are typically on a smaller scale and would not yield sufficient profits for large-scale construction companies. Hence, profit margins must be sacrificed to pursue these smaller projects,” the SS report states.

2023-01-26  Staff Reporter

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