CHAMWE KAIRA
Economic research firm Simonis Storm has said while it remains cautious about the overall recovery of the construction sector, it is 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 favorable environment for property financing, particularly in the residential sector, the firm said.
“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,” the firm said.
Simonis said 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, who focus on smaller, less capital-intensive projects.
With more rate cuts likely, Simonis said it anticipates that financing conditions will continue to improve, potentially unlocking further investment in both new developments and renovations.
The firm said 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 stabilise and credit extension picks up.”
Simonis said looking ahead, it believes 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.”
Although Simonis remains cautious about the pace of recovery in the construction sector, the firm finds encouragement in 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 said.
Furthermore, the analysis of private sector credit extensions for mortgage loans from January to August 2024 points to ongoing challenges in the property market. Corporate mortgage loan growth averaged just 1.74%, which Simonis said suggests 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, Simonis said.
