‘Namibia’s rental market in a coma’
13 July 2021 | Economics
Frans Uusiku, Market Research Manager: FNB;
As the domestic economy remain in a recessionary state, which appears to have been prolonged by the third wave of Covid-19, and low vaccination rate is expected to keep the rental market in a “coma” on the back of muted demand.
According to Frans Uusiku, Market Research Manager at First National Bank (FNB), the residential rental index posted an annual contraction of 3.1% at the end of March 2021, from 0.0% a year earlier.
Given these developments, the national weighted average rent stood at N$6 686 in March 2021 compared to N$7 465 recorded in March 2020.
Uusiku notes that the one-bedroom, two-bedroom and three-bedroom segments saw annual rental contractions of 0.8%, 2.8% and 1.0%, reaching N$$3 641, N$6 687 and N$9 636, respectively.
The only segment that showed annual growth in rent prices is the more-than-three-bedrooms unit which registered growth of 0.3% to N$17 169, he added.
These patterns highlight the widespread affordability issues amongst tenants and increased demand for multi-family renting units to support affordability in these economically challenging times, Uusiku pointed out.
Namibia recorded a negative growth rate of 6.5% in the first quarter of 2021 compared a contraction of 2.5% in the corresponding quarter of 2020.
This could have far-reaching implications for the stability of the financial sector, with potential unfavourable consequences such as depressed property sales
“While we do not believe we have effectively reached that state yet, some signs are emerging. For instance, the real estate and profession activities is amongst the five sectors that carried through the economy in the first quarter of 2021, realizing growth of 4.6% year-on-year. This is further supported by a considerable growth in home sales seen over the reviewed period,” Uusiku said.
Looking at the towns, Walvis Bay continue to top the list in terms of annual rental contractions with - 44.4%, followed by Oshakati (-33.9%), Swakopmund (-28.4%), Ondangwa (-20.7%), Okahandja (-14.4%), Gobabis (-14.2%) and Windhoek (-3.5%), Uusiku pointed out.
Conversely, rent in Tsumeb, Rundu and Ongwediva grew by 35.8%, 31.0% and 20.2% year-on-year, respectively. These robust growth figures point to a high vacancy rate in the middle market segment across these jurisdictions as affordability issues remain, Uusiku said.
The total amount of rental activity recorded for the first quarter of 2021 contracted by 3% q/q and by 55% year-on-year to 2795.
While there is no definite trend observed across the 1 to 3-bedroom segments, a persistent decrease in the relative share of rental listings within the more-than 3-bedrooms segment is notable from 7% in the first quarter of 2020 to 4% in the corresponding quarter of 2021. This highlights a relatively low turnover rate within this segment and increased demand for multi-family rental units to support affordability, he said.
The yields on residential investment property have declined considerably as rental growth fails to keep up with rising housing prices, especially in the medium to low housing market. At the end of March 2021, the return on an investment property was measured at 7.1%, reflecting a 0.8 percentage point decline from the preceding period.
“Although we still view the current rental yields as indicative of a stable residential property market, the attractiveness of the residential property as an asset class would continue to depend on how soon the economy would return on its sustainable growth path,” he said.
Overall, deposits charged by landlords contracted by 23.0% year-on-year at the end of March 2021 compared to a contraction of 32.1% year-on-year recorded during the same period of 2020.
The significant reduction in deposit payable of 60% is notable within the more-than-three-bedrooms segment compared to a reduction of 30% realized a year earlier. This state of affairs is reflected in a continued deceleration of the deposit to rent ratio, reaching 4.6% at the end of March 2021 from 5.8% in March 2020.
Looking ahead, “competition for high quality tenants is a theme that we believe will continue to shape the outlook of the rental property market for as long as the economy remain in a recessionary state,” Uusiku concluded.