Housing market remains under pressure
The FNB House Price Index
20 January 2020 | Infrastructure
Ruusa Nandago; FNB Group Economist; "further gains were capped by contractions observed in the Coastal and Northern regions,"
“The deeper contraction in the third quarter reflects elevated demand side risks emanating from subdued household income and confidence. While positive price growth was recorded in the Central and Southern regions, further gains were capped by contractions observed in the Coastal and Northern regions,” Nandago said.
According to the report, the Coastal region once again recorded the poorest price growth, with prices in this region contracting by 5.4% y/y compared to a contraction of 1.9% y/y over the same period last year.
The average house price in the Coastal region is now N$1 041 000. Swakopmund had the highest average house price at N$889K ahead of Walvis Bay at N$832K and Henties Bay at N$572K.
Research further indicates that the average price for a house at the end of September was N$1 120 805.
The volume index recorded growth of 0.2% y/y at the end of September 2019.
The small segment recorded growth of 10.3% y/y but this was almost entirely offset by contractions in the medium, large and luxury segments of 27.2% y/y, 38.9% y/y and 58.3% y/y respectively.
Furthermore, the small segment made up 83% of all housing transactions, followed by the medium segment which made up 15%, the large segment (2%) and the luxury segment (0.4%) of all transactions.
According to Nandago, this confirms an earlier view that demand has shifted to and will remain concentrated in the small segment. She added that demand side factors have been dominating the property market over the course of the year, with anaemic demand keeping property market activity subdued.
“Property price growth and transaction volume growth have come under immense pressure in a macroeconomic environment characterised by weak consumer spending and consumer uncertainty. In addition to poor price growth, sellers have had to drop their asking prices by 22% before securing a sale and a single property remains on the market for an average of 8 months before it is sold. These dynamics have kept growth in house prices at bay.”
A shift in activity towards the small segment has been the dominant theme for the year and this is further evidence of mounting pressures on household incomes, Nandago said.
“We expect activity to remain robust in the small segment, weak activity in the medium, large and luxury segments are likely to keep a lid on property price and volume growth. We are of the opinion that the recent repo rate cut, and any future rate cuts will not yield a recovery in the property market as a rebound in the housing market will require a significant shift in macroeconomic fundamentals.”
According to Nandago, downside demand risks was expected to continue dominating due to the erosion of household spending power. “As such, property prices will remain in the red, particularly in the medium to upper end of the market,” she concluded.