First Capital House Building Cost Index

Transcription

1 Volume 4:2018 First Capital House Building Cost Index (October 2016) First Capital House Building Cost Index (April 2018 )

2 Table of Contents Content Page List of tables... 1 List of Figures... 1 Acronyms DOMESTIC BUILDING PRICE TRENDS House Building Cost Index Sub-Components Index annual inflation Total cost for building a standard house SUB-COMPONENTS PRICE ANALYSIS Materials Prices Analysis Trend review and Outlook on Building Materials Building Materials cost by town Land Cost The Price of Land by Town FACTORS SHAPING THE MATERIALS PRICES OUTLOOK CONCLUSION 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 First Capital Building Cost Report 1

3 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. First Capital Building Cost Report 2

4 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 in March 2018, 4.3 percent above the 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 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. First Capital Building Cost Report 3

5 Figure 2: Annual Cost change in Building cost components Source: First Capital Research 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. First Capital Building Cost Report 4

6 Figure 3: The total cost of building a standard residential house using March 2018 prices Source: First Capital Research 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 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 First Capital Building Cost Report 5

7 been slowing over two years since 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 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. First Capital Building Cost Report 6

8 Table 1: Building Materials bill on a standard 3 bedroom residential house March 2017, Bill of Quantity, N$ March 2018, Bill of Quantity, N$ March 2018 y/y increase NO ITEM QTY 1 Brick work materials 100, , % Super Bricks 7mpa 14,239 43,590 45, % Cement 50KG ( Both High & Semi Strength) ,230 30, % Sand (Cubic meters) 54 17,020 17, % Concrete stones (Cubic meters) 15 6,300 6, % Brick force & DPC 1,620 1, % Ant Poisoning(5 L) 1 1,382 1, % Others 950 1, % 2 Roof & Celling materials 25,010 26, % IBR Roof sheeting 12,100 12, % Facial Boards 4,810 5, % Lipped Channel/ Timber 3,800 4, % Rhinobard Ceiling 3,050 3, % Others 1,250 1, % 3 Doors & Windows materials 21,928 22, % Doors 4,730 4, % Door Frames 4,305 4, % Steel Window frames 4,200 4, % Windows 4,370 4, % Linkols 2,225 2, % Others 2,098 2, % 4 Plumbing materials 20,570 21, % Copper pipes 5,100 5, % Sewer pipes 4,280 4, % Sinc 3,350 3, % Basin 3,050 3, % Gyser 100L 3,400 3, % Toilet pot set, Baths e.t.c 2,900 3, % Others 1,890 1, % 5 Electrical materials 18,247 19, % House wires 4,997 5, % Cabbles 4,400 4, % DB Board 3,770 3, % PVC Pipes 3,300 3, % Others 1,780 1, % 6 Tilling & Painting materials 12,063 12, % Floor & Wall tiles 10,055 10, % Paint (Primaer & Colour Coat) 3,540 3, % Other materials 2,008 2, % 7 Fencing materials 15,150 15, % Wire Fence & Gate 15,150 15, % 8 Contigency materials 15,050 15, % Nails, screws, e.t.c 15,050 15, % Total materials Source: First Capital Research 228, , % First Capital Building Cost Report 7

9 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 Source: First Capital Research 3.2. Land Cost 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 First Capital Building Cost Report 8

10 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 Source: First Capital Research 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 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 First Capital Building Cost Report 9

11 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$ , 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 29 th 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. First Capital Building Cost Report 10

12 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 tonnes of cement in Despite the two years conservative slowdown in output levels of cement, the production capacity of Ohorongo stands at 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 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. First Capital Building Cost Report 11

13 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. First Capital Building Cost Report 12

14 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 milner@firstcapitalnam.com lizah@firstcapitalnam.com albertinas@firstcapitalnam.com mwinga@firstcapitalnam.com Martin Mwinga Claudia Guedes Jean P Dushimire Tafadzwa Mashozhera mwinga@firstcapitalnam.com claudiag@firstcapitalnam.com johnp@firstcapitalnam.com mashozhera@firstcapitalnam.com Clarinda Kavezuva clarak@firstcapitalnam.com Milner Siboleka milner@firstcapitalnam.com Telephone: Fax: No. 124 John Meinert Street Windhoek West Windhoek P.O. Box 4461 Windhoek Namibia Website: 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. First Capital Building Cost Report 13