The housing bubble bursts: House prices in Namibia take a dip

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By Magreth Nunuhe

Windhoek – Namibia’s housing market seems to be correcting itself, as prices, especially in the upper tiers, are dropping sharply.

This comes after a decade during which Namibia’s property prices shot through the roof to be among the highest in the world.  

An 8.8% drop in prices in the last seven months has seen a reversal of the trend that was witnessed during the period between 2009 and 2015 when property prices shot up by 87.8% (from an average R400,000 to R900,000).

High demand and a limited supply of houses pushed prices in Namibia’s capital, Windhoek, skywards resulting in a decent middle-income house now costing on average R1.1 million (US$80,000), according to the latest housing price index released by the First National Bank of Namibia (FNB) in December 2017.

The average sluggish rise in house prices in the past three years, especially in the upmarket suburbs ‑ coupled with the country’s economic downturn – point to an imminent decrease in the general housing price index in all income brackets, if this trend continues.

A three-bedroomed house with double garage and an outside flat on a 1,000 square metre erf in a lavish neighbourhood such as Eros, Hochland Park and Academia, which would normally have a R3 million price tag or more, is now selling “below valuation” – even down to as low as R2.5 million.

In medium- to high-income neighbourhoods like Cimbebasia, Rocky Crest and Tauben Glen, property market prices are also running out of steam and now going below the R2 million margin.

This trend has also been observed in the rental market, where monthly rentals for a two-bedroomed apartment in the luxury segments was R8,500 monthly but is now settling for R7,500 or less.

In lower-income neighbourhoods like Otjomuise and Khomasdal, rent has dropped from R7,500 to as low as R5,000.

Namene Kalili, Research Manager: Strategic Marketing and Communications at FNB agrees that the decline in house prices is more pronounced in the upper tiers.

However, he maintains that this cannot be said to be a drastic fall in prices.

“We believe the very low mortgage penetration means there are fewer distressed sales than observed in advanced economies, and coupled with a massive housing backlog, there is sufficient demand in the middle to lower tiers to support property prices overall,” he says.

This rapid increase in houses in Namibia has been attributed to speculation, developers ‘fixing’ prices and valuators artificially inflating prices, among other factors.

But some now credit the drop in demand for houses to new regulations that compel banks to ask for higher deposits for repeat buyers.

“This is part of the story. The other part is the increase in the supply of land and mass housing units outside Windhoek. Hence, volumes have improved substantially, providing prospective buyers with numerous buy, rent and build options. This is a welcome relief for the thousands of households, who have not been able to afford properties during the two decades of robust property price growth,” said Kalili.

The Municipality of Windhoek has entered into a public-private partnership with private contractors to build houses that would benefit 138,000 people in the middle-income range in the Otjomuise and Rocky Crest. The Havana informal settlement is also to be upgraded.

Many people, including the International Monetary Fund’s 2015 report, have warned of an impending housing bubble burst in the Namibian housing market.

Owing to a lack of long historical series for the house price index, the IMF based its assessment on common housing ratios and benchmarked the Namibian case against evidence in other countries.

The estimates, according to IMF, were derived from a very short time series that captured only the upswing of the housing cycle, likely biasing upwards the real long-term relation between house prices and fundamentals.

In the IMF study, Namibia’s housing ratios suggested an average overvaluation of about 20% at peak although IMF warned that the results should be interpreted with caution.

Sam Mwando, a lecturer in the department of land and property sciences at the Namibia University of Science and Technology wrote in an article published in the local media that America’s housing bubble of 2008, which triggered the world financial crisis, could be used as a warning sign for the Namibian housing market. He said while we cannot make comparisons between the American and Namibian housing markets, a large part of the Namibian population, who qualify, depend on mortgage finance to buy houses.

Mwando questioned then whether the latest “catchphrase” in advertisements ‘selling under valuation’ meant that there had been an oversupply of overpriced properties on the market by developers.

“Residential prices are bound to drop if the supply of property in the long-term outstrips effective demand. When that happens, then the housing bubble bursts,” he said.

He believed that the Namibian housing market was self-correcting as evidenced in the significant discounts on properties for sale.

 

 

 

“All key actors in the market realise that property prices will not continue to skyrocket,” he asserted.

Kalili, on the other hand, could not say whether the housing bubble has burst, but he conceded that “housing prices have been inflating since independence, but now, the economic backdrop ‑ coupled with regulatory changes and increased supply ‑ has pushed property prices downwards”.

“Despite denial in the market, prices are falling but not as rapidly as other countries regionally. We believe this is primarily due to the low mortgage penetration, the sheer size of the housing backlog and the credit shortfall risk,” he said.

Housing affordability has been a challenge in Namibia, particularly for those in the low-income segment where the housing backlog is highest. Despite the falling prices and increase in housing projects in the capital, affordable housing remains a pipe dream for this segment, where an estimated 45,000 people in the low-income segment earn between R0 and R1,500 per month, while an estimated 30,000 people earn between R1,501 and R4,600. The main drivers of house prices in Namibia are largely shortage of serviced land and sluggish response of supply to the increased demand, especially in the low-income segment of the market.

The Build Together programme, a self-help building project, was initiated to focus on people who earned under R3,000 per month, while the National Housing Enterprise (NHE) only provided housing to those who earned over R5,000 a month (13% of the population).

In a quest to provide adequate housing for all Namibians, with water and sanitation facilities, the government also introduced Vision 2030 with a target to build 3,000 houses each year to clear the backlog estimated at 80,000 houses.

To fast-track this endeavour, the National Mass Housing programme was launched in 2013 and this also absorbed the Build Together programme.

With 15 years to go the economic slowdown in the country is threatening to derail the achievement of this Vision 2030 target, especially as the National Mass Housing project that held promise to deliver had to be suspended due to lack of funds. At its launch, the mass housing project intended to build 185,000 houses by 2030, the NHE said.

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