First Capital House Building Cost Index Building... · house. On average building materials accounts for 60 percent of the cost bill for building a new residential house. Due to the

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FirstCapitalHouseBuildingCostIndex(October2016)

FirstCapitalHouseBuildingCostIndex (April2018 )

Volume 4:2018

First Capital Building Cost Report | 1

Table of Contents Content Page List of tables ...................................................................................................................... 1 List of Figures .................................................................................................................... 1 Acronyms ........................................................................................................................... 1 1. DOMESTIC BUILDING PRICE TRENDS .......................................................................... 3

1.1. House Building Cost Index ...................................................................................... 3 1.2. Sub-Components Index annual inflation .................................................................. 3 1.3. Total cost for building a standard house .................................................................. 4

3. SUB-COMPONENTS PRICE ANALYSIS ........................................................................... 5 3.1. Materials Prices Analysis ......................................................................................... 5

3.1.1. Trend review and Outlook on Building Materials ................................................. 5 3.1.2. Building Materials cost by town .......................................................................... 8

3.2. Land Cost ................................................................................................................ 8 3.2.1. The Price of Land by Town .................................................................................. 8

4. FACTORS SHAPING THE MATERIALS PRICES OUTLOOK ........................................... 10 5.CONCLUSION ............................................................................................................... 11

List of tables Table 1: Building Materials bill on a standard 3 bedroom residential house ............................. 7

List of Figures Figure 1: House Building Cost Index Trend ........................................................................ 3 Figure 2: Annual Cost change in Building cost components ............................................... 4 Figure 3: The total cost of building a standard residential house using March 2018 prices 5 Figure 4: Building Materials Cost by Town ......................................................................... 8 Figure 5: Average Price of Land from Local Authority measuring 375 square meters .......... 9

Acronyms

CPI : Consumer Price Index

IMF : International Monetary Fund

EU : European Union

FC : First Capital

IMF : International Monetary Fund

Kg : Kilogram

L : Litres

P/mt : Per Metrictonne

MME : Ministry of Mines and Energy

NSA : Namibia Statistics Agency

N$ : Namibian Dollar

USA : United States of America

Y/Y : Year on Year change

ZAR : South Africa Rand


Note to the reader

We welcome you to our publication of the First Capital(FC) House Building Cost report where

we monitor trends of the cost of building a house. This report is one of our contributions to

research on issues affecting society and the economy. We recognize that housing provision is

fundamental for long-term macroeconomic economic stability as not only does it provides

social and economic benefits for the benefiting families but also contributes immensely to

economic growth. Through this report we provide more insight into previous trends of prices

and simulates the impact of price changes on the cost of building a house. Furthermore, the

report covers analyses the factors that are driving prices which in later influence the cost to

building a house. Using current information and other leading indicators, we also present our

view on the likely scenarios of costs in the short to medium term.

This report will be published every quarter. Through this publication we believe every agent of

the economy will be informed.


1. DOMESTIC BUILDING PRICE TRENDS

1.1. House Building Cost Index

The First Capital House Building Cost Index based on the cost of building a standard 3

bedroomed house reached 112.9 in March 2018, 4.3 percent above the 107.4 index print

in March 2017 indicating that it was costing 4.3 percent higher to build a standard house

in March 2018 compared to March 2017 (See figure 1). On a quarterly basis, the cost index

was up by 1.1 percent in March 2018 compared to December 2017.

Figure 1: House Building Cost Index Trend

Source: First Capital Research

1.2. Sub-Components Index annual inflation

On average the price of land increased by 4.8 percent in March 2018 compared to a year

ago (See figure 2). Land remains the subcomponent of building cost which recorded the

highest price increase, relative to other cost components (Labour and Building Materials).

Building Materials prices were 4 percent higher in March 2018 compared to the same

month a year ago. Labour cost which is also inclusive of the profit margin for contractors

increased by 4.4 percent in March 2018(y/y). Overall all residential building costs

increased moderately by 4.3 percent higher in March 2018 compared to the same month a

year ago.


Figure 2: Annual Cost change in Building cost components


1.3. Total cost for building a standard house

Using the March 2018 prices, construction of a standard three-bedroom residential house

will cost on average N$376,298 to build in other towns of the country other than

Windhoek and Swakopmund, while in Windhoek and Swakopmund, it could cost

N$449,926 build (See figure 3 below). Using March 2018 prices, on average building

materials on a standard 3 bedroomed house could cost N$240,300 in Windhoek and

Swakopmund, while in other towns similar building materials could cost, N$242,570,

indicating that materials remain cheaper in Windhoek and Swakopmund than other towns

in the country. However, the price of land and labour cost is higher in Windhoek and

Swakopmund than elsewhere in the country. On average the local authorities in both

Windhoek and Swakopmund could sell a 375 meters square land at N$95,000 while in

other towns it could be sold at N$23,000. Equally, labour in Windhoek and Swakopmund

could cost 2 percent more than in other towns. Despite the building materials cost

advantage in Swakopmund and Windhoek, the high cost of both land and labour makes

the cost to build a house in these two cities expensive compared to other towns that

continue to benefit from cheaper land cost.


Figure 3: The total cost of building a standard residential house using March 2018 prices


3. SUB-COMPONENTS PRICE ANALYSIS

3.1. Materials Prices Analysis

Building materials cost accounts for the highest share in the total cost of building a

house. On average building materials accounts for 60 percent of the cost bill for building a

new residential house. Due to the significant share of building materials cost on the total

cost of building a house, prices of such materials over time remains key in influencing the

total cost of building a house. The following section analyses trends of prices for building

materials.

3.1.1. Trend review and Outlook on Building Materials

Cement prices Analysis: Most of the Cement consumed in the country is manufactured

domestically, and its price is subject to mainly domestic factors that have an impact on

cement production. The domestic slowdown in the economy that started in 2016 have

impacted negatively on the construction sector which is a key demand sector for cement.

According to the National Accounts, the construction sector contracted by 26.3 and 25.6

percent in 2016 and 2017 respectively as construction activities slowed due to both low

investments by the private sector and government’s expenditure cuts. In line with the

trend of slowing construction activities in the country, domestic cement output has also


been slowing over two years since 2016. At the back of slowing demand, prices of cement

were barely stable in 2017, which in our view was also supported by weak demand. The

continued consolidation of the country’s fiscal position and the prolonged slowdown in the

economy remains major downside factors to the construction sector which continues to

weaken demand for Cement. With new entrant of a cement producing company in the

market that is set to begin supplying the market with the prolonged weak demand in

consumption of cement, we hold a view that prices will remain flat throughout 2018.

Super bricks: Price of super bricks increased by 4 percent in March 2018 compared to

March 2017 (See table 1). The price of bricks is influenced by the price of cement and

transport cost of transporting sand from the extraction site to the site of producing bricks.

The price increase of 4 percent in bricks is in line with price increase of sand and

transport costs. In 2018, we do not expect major price shock to the price of bricks, as slow

demand should be limiting factor for the motive by producers to increase prices.

Competition among brick suppliers will also be key in keeping prices stable as of recent

competition in the market of supplying bricks has peaked up.

Sand: Annual figures show an increase of 4.8 percent in March 2018 compared to the

price of sand in March 2017 (See table 1). Unlike for bricks, suppliers of sand remain few

and this have always supported increases in the price of sand. The recent move towards

regulating sand mining given the environmental impact it poses in areas where sand is

mined could be another factor which we believe will further limit reduce suppliers in the

market. This however, could mean a marginal increase in the price of sand.

Electrical goods: The prices of electrical goods surged went up by 4.8 percent on an

annual basis in March 2018 (See table 1). The input commodities of the manufacturing of

these electrical goods is base metals like copper, aluminium and steel. Given that Namibia

imports most of electrical materials goods, the local exchange rate and prices of base

metals which are production inputs will be key to the outlook of electrical building

materials. In line with the World Bank and IMF’s outlook of slow recovery in the prices of

base metals, we expect domestic prices of electrical goods will remain stable throughout

2018 supported by the continued exchange rate resilience of the local currency against the

US dollar.


Table 1: Building Materials bill on a standard 3 bedroom residential house

NO ITEM QTY

March 2017,

Bill of

Quantity, N$

March 2018,

Bill of

Quantity, N$

March 2018

y/y increase

1 Brick work materials 100,092 104,071 4.0%

Super Bricks 7mpa 14,239 43,590 45,351 4.0%

Cement 50KG ( Both High & Semi Strength) 264 29,230 30,096 3.0%

Sand (Cubic meters) 54 17,020 17,850 4.8%

Concrete stones (Cubic meters) 15 6,300 6,600 4.8%

Brick force & DPC 1,620 1,710 5.6%

Ant Poisoning(5 L) 1 1,382 1,462 5.8%

Others 950 1,002 5.5%

2 Roof & Celling materials 25,010 26,090 4.3%

IBR Roof sheeting 12,100 12,600 4.1%

Facial Boards 4,810 5,000 4.0%

Lipped Channel/ Timber 3,800 4,000 5.3%

Rhinobard Ceiling 3,050 3,200 4.9%

Others 1,250 1,290 3.2%

3 Doors & Windows materials 21,928 22,860 4.3%

Doors 4,730 4,920 4.0%

Door Frames 4,305 4,560 5.9%

Steel Window frames 4,200 4,380 4.3%

Windows 4,370 4,500 3.0%

Linkols 2,225 2,300 3.4%

Others 2,098 2,200 4.9%

4 Plumbing materials 20,570 21,510 4.6%

Copper pipes 5,100 5,300 3.9%

Sewer pipes 4,280 4,500 5.1%

Sinc 3,350 3,500 4.5%

Basin 3,050 3,180 4.3%

Gyser 100L 3,400 3,575 5.1%

Toilet pot set, Baths e.t.c 2,900 3,040 4.8%

Others 1,890 1,990 5.3%

5 Electrical materials 18,247 19,116 4.8%

House wires 4,997 5,250 5.1%

Cabbles 4,400 4,600 4.5%

DB Board 3,770 3,950 4.8%

PVC Pipes 3,300 3,466 5.0%

Others 1,780 1,850 3.9%

6 Tilling & Painting materials 12,063 12,595 4.4%

Floor & Wall tiles 10,055 10,550 4.9%

Paint (Primaer & Colour Coat) 3,540 3,702 4.6%

Other materials 2,008 2,045 1.8%

7 Fencing materials 15,150 15,700 3.6%

Wire Fence & Gate 15,150 15,700 3.6%

8 Contigency materials 15,050 15,600 3.7%

Nails, screws, e.t.c 15,050 15,600 3.7%

228,110 237,542 4.1%Total materials Source: First Capital Research


3.1.2. Building Materials cost by town

Figure 4 below shows a comparison of the cost of building materials in the six towns. As

expected the cost of Building materials are higher in Katima Mulilo (N$242,200) and

Rundu (N$242,100) due mainly to transport costs. According to our findings, Windhoek

and Swakopmund offers cheapest building materials compared to other towns. The total

bill of building materials costing above N$242,000 in northern towns will cost less than

N$241,100 both in Swakopmund and Windhoek.

Figure 4: Building Materials Cost by Town


3.2. Land Cost

3.2.1. The Price of Land by Town

Land in Namibia is offered either by the local authority or by private developers depending

on how the process of servicing or developing the land was done. Generally, land

developed and sold by local authorities is cheaper than in the case when land is developed

by private developers. However, prices by private developers differ substantially and are

determined by the seller taking into consideration the cost of developing the land. In this

report land price is considered to be the price sold if land was developed and offered by

local authorities. Our standard area of land for price comparison in all towns is 375

square meters. For comparison, the town specific average price of land per square meter is

multiplied with the land measuring 375 square meters to derive the cost of land which is

used in making comparisons. Figure 5 below presents the average price of serviced ervens


at the price sold by local authorities. The price of every town reflects the average price of

all locations in such a town.

Figure 5: Average Price of Land from Local Authority measuring 375 square meters


Despite that building material for a standard residential house are cheaper in Windhoek

and Swakopmund, the average price of buying land from these local authorities is ranked

highest compared to other towns in the country. Due to the high cost in the price of land

in most upper locations both in Windhoek and Swakopmund, we have only considered the

middle and low income residential location for the prices of land which could be a

reflection of the cost to an average household. An average 375 square meters of land is

costing N$110,000 in Windhoek and in Swakopmund it costs N$75,000 (See figure 5).

Land remains cheaper in Keetmanshoop followed by Katima Mulilo. An Average price of

land measuring 375 square meters will cost you N$18,200 in Keetmanshoop. Both Rundu,

Ondangwa, Katima Mulilo and Keetmanshoop sells land measuring 375 square meters at

no more than N$24,100 which is 4.5 times less than the price of land in Windhoek. Land

price remains high in Windhoek than other towns in the country due to the high cost of

servicing land which is transferred to households when buying land.

3.4. Labour Cost

Labour cost is traditionally charged based on the rate per time taken to complete a task.

In this report we however recognise that and supplement that framework with an


international standard of benchmarking the total cost of labour on a given construction

project. According to international lessons on benchmarking the cost of labour, the total

cost of labour should not exceed 35 percent of the total cost of materials. To be

conservative, we adjusted our benchmark of the total labour cost of constructing a house

to be 40 percent of the total materials cost on a project of constructing a residential house

which is also inclusive of the profit margin for a building contractor. In the presented

scenario where average building materials cost to build a 3 bedroom standard residential

house is N$241 331, labour could cost N$100,926 on average in both Windhoek and

Swakopmund while in other towns it should cost N$97,028. The higher labour cost in

Windhoek is explained by the extra workload due to excavation of rock surface ground to

make foundation for construction compared to soft surface for foundation excavation in

other towns.

4. FACTORS SHAPING THE MATERIALS PRICES OUTLOOK

Input Cost of production for building materials: The outlook on input cost of building

materials suggest stable prices for the input cost of most of the materials. The current

trend and outlook of increased domestic Magnetite production which is used in the

manufacturing of cement, could be a factor for stable input cost on cement. Stable input

costs should transmit through lower cement floor or producer prices to retail prices in

building materials at warehouses. Equally so, we hold a view that there will be no price

shock on electrical and metal building materials based on the outlook of lower commodity

mental prices like Aluminium, Copper, Steel and Zinc which are key inputs to the

manufacturing of electrical and metal building materials. Both IMF and World Bank

projects an outlook of slow recovery on metals commodity prices.

Currency exchange rate developments: The South African rand exchange rate with the

United States dollar (US$) which is a widely used currency in international trade

transactions will be another key factor to the outlook of a significant share of materials we

import mainly from China, the USA and Europe. On the 29th March 2018 the rand was 5.3

percent firmer against the US$ compared to the exchange rate a year ago. Most

international forecasts suggest a weak US$ outlook which will benefit the local building

materials prices.


Demand and Supply trends: The construction sector contraction is an indication of the

slowdown in demand. In line with this slowdown in demand, domestic supply of cement by

Ohorongo cement remains a confirmation that construction activities have slowed. Since

2016, Ohoongo cement output has continuously been declining after reaching a peak of

785 000 tonnes of cement in 2015. Despite the two years conservative slowdown in output

levels of cement, the production capacity of Ohorongo stands at 950 000 tonnes of cement

implying that they are now producing about 25 percent below their full capacity. On the

back of weak demand, another player has joined the supply market of cement. Given a

combination of supply competition of cement and weak demand we hold a view that prices

will remain fairly unchanged in 2018.

5.CONCLUSION

The cost of building a standard 3 bedroom residential house can range from N$376,298 in

other towns of the country other than Windhoek and Swakopmund while it will cost on

average N$74,000 more to build the same house with similar specifications in Windhoek

and Swakopmund. In the case of the local authorities servicing and selling land, in

Windhoek land will cost 6 times more than the average price you could get the same size

of land in Keetmenshoop. The trend of lower land price compared to Windhoek equally

holds with all other towns in the country. The primary reason for high land and labour

costs in Windhoek is credited on the extra labour required to excavate surface land which

is rocky in most parts of Windhoek to make the foundation of the building structure.

However, we equally hold the view that the elevated cost of living in both Swakopmund

and Windhoek could be another factor to the higher cost of labour in these major cities

compared to small towns that have generally low living conditions.


Our Methodology

The First Capital House Building Cost Index is constructed from weighted prices of Materials,

Labour including the contractors profit margin and Land. This report highly acknowledge the

varying building costs on a house due to size, specifications, hence for comparison we are

using s standard 3 bedroomed residential house structure measuring 76 square meters, with

among other 220cm(double brick) external walls, 110cm(single brick) internal walls, average

wall plate height of 3 meters with ceiling height of 2.7 meters, corrugated/IBR pitch roof. The

building material prices collected covers a list of construction raw materials identified to satisfy

the construction needs of a standard house. Prices are collected in six different towns of

Namibia (Windhoek, Keetmanshoop, Swakopmund, Ondangwa, Rundu and Katima Mulilo)

from different building material suppliers depending of the town’s suppliers. Construction

materials covered include supper bricks (by quality), sand (for coarse, medium, and fine

variants), cement (by types), crushed stones, and various other raw materials, including irons,

steel sheets (by dimension), and plumbing materials.

The prices of building materials from all building materials suppliers in a given area are

averaged to give an average price of each material by area (e.g. the price of cement in

Windhoek reflects the average of all prices of cement from all the building materials

supermarkets in Windhoek). These item specific prices are then used to derive an index figure

which, if compared with an index of the previous period, will give you the average price

increase/decrease (Inflation) for the current period.


ABOUT US

First Capital Namibia is a financial services company specialized in providing treasury and asset (investment)

management services. Established in July 2009, First Capital have in-depth, personal knowledge of the

Namibian capital markets and the resulting insight enables us to manage Namibian assets across different

spectrum including cash management, equity, fixed income, specialist agriculture and property mandates. We

are licensed to manage money for private investors, pension funds, insurance groups, public (government)

sector, and charities. Our credibility as asset managers is tightly governed by the Namibia Financial

Institutions Supervisory Authority (NAMFISA). We are a Namibian based investment team and focus

exclusively on the Namibian market and we add value to portfolios through offering specialized Namibian

mandates.

CONTACT US

RESEARCH SALES LENDING PORTFOLIO MANAGEMENT

Milner Siboleka Lizah Bezuidenhoudt Albertina Shoopala Martin Mwinga

[email protected] [email protected] [email protected] [email protected]

Martin Mwinga Claudia Guedes Jean P Dushimire Tafadzwa Mashozhera

[email protected] [email protected] [email protected] [email protected]

Clarinda Kavezuva Milner Siboleka

[email protected] [email protected]

Telephone: +264 61 446700

Fax: +26461401353

No. 124 John Meinert Street

Windhoek West

Windhoek

P.O. Box 4461

Windhoek

Namibia

Website: www.firstcapitalnam.com

Disclaimer: This document is issued by First Capital Namibia. While all reasonable care has been taken in preparing this

document, no responsibility or liability is accepted for errors of fact or for any opinion expressed herein. Opinions, projections, and

estimates are subject to change without notice. This document is for information purposes only. It does not constitute any offer,

recommendation, or solicitation to any person to enter into any transaction or adopt any hedging, trading, or investment strategy,

nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future

movements will not exceed those shown in any illustration. The contents of this document are not made with regard to the specific

investment objectives, financial situation, or the particular needs of any particular person.

Documents

First Capital House Building Cost Index Building... · house. On average building materials accounts for 60 percent of the cost bill for building a new residential house. Due to the