The dawn of a ‘renter’s market’ in Namibia is how the rental market has been described, signifying a time when landlords will now be forced to lower rent prices, particularly in upper market areas where discounts of 15% to 20% are anticipated. This sorry state of property affairs is brought about by a continued shortage of quality tenants as the country continues to grapple with the protracted economic recession.
These sentiments are expressed in the latest FNB Rental Index, compiled by the bank’s market research manager, Frans Uusiku.
The index shows that the 12-month moving average growth in rent prices declined by -1.3% at the end of September 2020, bringing the national weighted average rent to N$7 091 at the end of September 2020 compared to N$7 164 recorded over the same period in 2019.
“The sudden return of the rental index growth into negative territory affirms the pass-through effects of the Covid-19 pandemic on the rental market,” reads the report.
“This is unsurprising given the notable job losses and reduced income for the most part of the workforce as the country implemented Covid-19 containment measures during this period. The government reported that 8 000 employees were dismissed during the first two quarters of 2020 compared to 950 employees dismissed over the same period of 2019. The demand dynamics remain highly skewed towards the lower end of the market as affordability becomes increasingly challenging.”
The latest figures confirm that the annual average rent price for a one-bedroom and two-bedroom unit grew by 1.0% and 0.5% year-on-year (y/y), respectively to N$3 600 and N$7 006 as at September 2020. Conversely, the three-bedroom and more-than-three bedrooms units recorded annual contractions in rent price of 1.5% and 8.2% y/y respectively to N$9 937 and N$16 657 at the end of September 2020.
Said Uusiku: “Generally, tenants tend to move in with family or share with friends in tough economic times, and this reduces the overall demand for rental units. This results in landlords offering reduced rents, not only to retain quality tenants but also to achieve the desirable level of occupancy to remain afloat. We see the emergence of this theme playing out in the Namibian rental market particularly in the high-end segment.”
Uusiku also retained the view that the dynamics around the adoption of remote working and multi-family renting cultures are likely to be one of the key defining features of demand and supply forces in the rental market as the global community anticipates the resurgence of the second wave of the pandemic.
Regionally, growth in rent prices has also remained bleak in towns where pandemic-induced retrenchments have been reported, mainly due to the relative dominance of industrial and hospitality related sectors in these areas. Walvis Bay continues to bear the brunt of a deeper contraction in rent prices of 43.9% y/y, followed by Ondangwa (-30.3% y/y), Rundu (-20.5% y/y), Oshakati (-17.0% y/y), and Windhoek (-2.0% y/y). The only towns that have spurred growth in rent prices are Ongwediva and Okahandja with 5.2% and 4.3% y/y, respectively.
The FNB Rental Index further noted that rental advertisement volumes almost doubled on the quarterly basis, increasing by 80% quarter-to-quarter (q/q) to 5 058 units in the third quarter of 2020.
Uusiku explains this could partly be attributed to cancellations of rental contracts due to affordability issues and the advent of the narrative that owning a property instead of renting is increasingly seen to be gaining traction as house prices tumble.
“Consequently, the one-bedroom and two-bedroom units were the most sought after in the market. In fact, these are the only segments that have sustained growth in rent prices during the period under review, and arguably the only segments where tenants appear to have limited bargaining power and scope to negotiate for reduced rents,” said Uusiku.
Deposit to rent ratio
Meanwhile, the index also indicates that overall deposits charged by landlords contracted by 23.8% y/y at the end of September 2020 compared to a contraction of 30.8% y/y at the same time in 2019. This was more pronounced in the two-bedroom and more-than-three-bedrooms segments which contracted by 45.5% and 32.4% y/y respectively, compared to contractions of 28.8% and 29.5% y/y realised a year ago. This highlights an oversupply in rental properties on the back of weak tenancy demand and the growing relevance of a multi-family renting culture. As a result, the deposit to rent ratio worsened to record lows of 5.2% - further pointing to a deteriorating state of the Namibian economy.
Rental growth by segment… One-bedroom and two-bedroom units were the most sought after in the market.
Source: FNB Rental Index