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Rental index records smaller contraction

2020-01-21  Staff Reporter

Rental index records smaller contraction

WINDHOEK - FNB Namibia’s latest rental index report, which was released yesterday, confirms that growth in rental prices remains in contractionary territory with the FNB Rent Price Index, recording a contraction of 1.9 percent at the end of September 2019, compared to a contraction of 8.6 percent over the same period last year. The price dynamics in the rental market have brought the national rent price at the end of September to N$7 163.94 per month, while overall, the rental market remains in negative territory, owing to the persistent weak domestic economy.  

According to Ruusa Nandago, FNB Group Economist, the Rent Price Index is based on average advertised prices in the residential property market across the country. The report further indicates the smaller contraction was once again supported by price pressures in the more than 3-bedroom segment whose growth stood at 9.0 percent year-on-year, compared to a contraction of 9.4 percent at the end of September 2018. In addition, pressures continue to build in the 1, 2 and 3-bedroom segments, which have resulted in smaller year-on-year contractions of 4.0 percent, 3.2 percent and 3.4 percent, respectively.  

Windhoek recorded the highest rental prices at the end of September, with the average rent at N$6 674.03 per month. This is, however, a 5.0 percent contraction compared to the same period last year. The lowest rental prices were recorded in Rehoboth at N$3 000 per month, with low rental prices in this town attributed to a smaller population and weaker economic activity and consequently thinner volumes in rental transactions compared to Windhoek. 

Prices in Walvis Bay recorded the highest growth in rental prices of 66.7 percent year-on-year. Other towns where rental growth was in positive territory include Ongwediva at 9.1 percent year-on-year, Okahandja at 3.0 percent year-on-year and Ondangwa at 1.5 percent year-on-year. 

The monthly rental price for a 1-bedroom unit is N$ 3 436.00, while a 2-bedroom unit rents for an average of N$6 890. A 3-bedroom and more than 3-bedroom unit now rents for N$9 705.00 and N$21 029.00, respectively. Overall, the average rent price per room at the end of September was recorded at N$3 515.79, a 2.7 percent year-on-year compared to a contraction of 9.6 percent recorded in July 2018. 
“When looking at shares of total rental activity, 39.4 percent of all activity took place in the 1-bedroom segment, followed by the 2-bedroom segment which accounts for 36.7 percent of all transactions and the 3-bedroom segment whose share was 20.6 percent. The more than 3-bedroom segment accounted for 3.3 percent of all rental activity,” reads the report.  

Meanwhile, the growth in deposits charged continues to trend lower with the reading at the end of September, recording a contraction of 30.8 percent year-on-year compared to 13.8 percent year-on-year. This is the lowest reading recorded since 2017 with contractions in deposit growth rates observed across all Rental Index Segments. 

Furthermore, the deposit-to-rent ratio has continued to trend lower and now stands at 6.8 percent, the lowest ratio it has been since April 2010. The deterioration in deposit to rent ratio was observed in all segments with the largest observed in the 3-bedroom segment. The persistently declining ratio continues to highlight the bargaining power potential tenants have in the rental market. We maintain our view that Namibia has moved to a renter’s market, allowing potential tenants to negotiate lower rental deposit charges or no deposit charges at all.

Rental yields, which are an indication of the return a landlord is likely to earn on the rental of a property, have shown a moderate increase from 7.6 percent recorded at the end of September 2018 to 7.8 percent recorded at the end of September 2019. 

The FNB Report also indicates that the Namibian rental market provides much higher yields when compared to other jurisdictions in sub-Saharan Africa including Kenya, South Africa and Zambia, where rental yields are 6.7 percent, 3.9 percent and 0.14 percent, respectively.

Nandago noted that the erosion in rental prices, which started in early 2018 because of the recessionary environment, seems to be gradually reversing. Prices in the 1-3-bedroom segments are showing smaller contractions, while prices in the more than 3-bedroom segment are in positive territory. The housing market remains under pressure, with very low levels of buying and selling activities, resulting in houses staying on the property market for 31 weeks before they are eventually sold. 

“We, thus, maintain our earlier view that rental affordability has not necessarily improved, but rather that rental property prices will be buoyed by an increasing number of participants opting to move into the rental market in the face of affordability issues in the housing market. This will likely continue to push up prices and lead to smaller year-on-year contractions in growth. We expect rental price growth to remain in contraction for the remainder of the year and to move into positive territory early next year, likely settling in the range of 1-2 percent,” said Nandago. 

2020-01-21  Staff Reporter

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