WINDHOEK - Prices in the rental market have shown some improvement compared to a year earlier but still remain in a contractionary environment. This is according to the most recent rental index report, prepared by FirstRand Namibia Limited.
In the report, Ruusa Nandago, Market Research Manager, FirstRand Namibia Limited stated that “with the House Price Index recorded at a nine-year low of -3.7 percent and the associated transaction volumes decelerating, the improvement in rental prices could be an indication that individuals are opting to stay in rental accommodation longer, as opposed to purchasing a home.”
Nandago added that this trend could possibly be ascribed to wage growth which has not kept up with inflation, thereby putting a severe strain on consumer purchasing power. “Furthermore, consumers are highly indebted and this, combined with low wage growth, presents affordability issues which make renting a more attractive option.”
The report goes on to show that advertised rental prices have continued to show signs of recovery, with the FNB Rental Index recording a smaller contraction of 3.1 percent y/y at the end of July 2019 compared to a contraction of 8.3 percent y/y recorded over the same period last year. This improvement was supported by the more than 3-bedroom segment which has reversed its downward trend, recording growth of 1.6 percent y/y compared to a contraction of 4.8 percent y/y in July 2018. Furthermore, prices in the one and three-bedroom segments are still contracting, but at slower rates of 2.8 percent y/y and 3.3 percent y/y respectively, while prices in the two-bedroom segment remain unchanged from July 2018 at 4.3 percent y/y. The average rental price now stands at N$7 219.98.
In the report, Nandago elaborated that while a smaller contraction was observed in rent prices, the growth in average deposits charged continues to lose ground. A severe contraction of 28.6 percent y/y was recorded at the end of July 2019 compared to growth of 15.7 percent y/y recorded over the same period last year. This is the largest contraction recorded since December 2017 and is observed across all Rental Index segments. The growing trend of landlords charging lower deposits or no deposits at all could be an indication that there is an excess supply of rental properties available in the market due to the low demand for rental units. In lieu of weakening purchasing power, charging a lower deposit or no deposit is a means by which to make rental properties more attractive to buyers.
Nandago added: “Should the status of the consumer not improve through broad based economic growth and the backlog in affordable housing not be addressed, Namibia is likely to turn into a renter’s market where individuals choose to rent over purchasing a home. Thus, we expect a continuous but slow annual increase in prices in the rental market moving forward. We are of the view, however, that growth in rent prices is unlikely to enter positive territory over the remainder of the year and likely to settle at -3.3 percent by the end of the year.”
Regarding rental yield, which provide an indication of the return that is likely be achieved from renting out a property, Nandago advised: “The rental yield at the end of July 2019 ticked up slightly to 7.7 percent, the highest recorded since March 2018. This market determined yield is, however, still far below the rental yield ceiling of 10 percent proposed in the Rent Control Bill. The increase in the rental yield comes on the back of an improvement in rental prices combined with weaker property prices. The rental yield is likely to continue increasing albeit at a slow pace, given our expectations that house prices will remain
weak.”