Posted by
Ruusa Nandago
on 15 May 19
Categories:
Finance & Budget
Real Estate Market
Annual property prices growth remains subdued
Key Highlights
Regional snapshots
South: N$896 000 (+14.5%)
North: N$919 000 (+4.6%)
Coast: N$ 1 036 000 (-4.0%)
Central: N$ 1 332 000 (-3.6%)
FNB Housing Segments
Small : N$0.5mn to N$1.5mn
Medium : N$1.5mn to N$3.4mn
Large : N$3.4mn to N$6.5mn
Luxury : N$6.5mn and higher
Since contracting for the first time in 2018 since 1996, the first quarter of 2019 saw residential property prices continuing the same trend. The FNB House Price Index recorded a contraction of 1.0% at the end of March 2019 compared to a contraction of 0.3% over the same period last year. The contraction is driven by significant Central price decreases. Overall, the property market remains lacklustre, as the price index continues to hover in a negative territory. We attribute this to the prevailing recessionary environment, which has kept demand muted subsequently lowering prices. Meanwhile, the volume index has improved significantly to 31.6% y/y compared to 11.7% y/y over the same period last year. Ordinarily, negative property price growth translates to shifts in housing market dynamics as the trend bodes favourably for buyers. Furthermore, the landings of property following the completion of several mass housing projects across the country have contributed to increased transaction volumes.
Transactions remain concentrated in the small housing segment where transaction volumes have picked up by 43% y/y. This is to be expected given construction under mass housing was concentrated in this segment. The large housing segment is the worst performer in terms of transactions this quarter, with volumes posting returns of -25% y/y. Upward price pressures exist in the medium, large and luxury segments, while prices in the small segment remain mute.
Transaction volumes in the Central region have accelerated significantly. The volume index was up to 38.7% y/y at the end of March 2019 compared to 2.2% y/y over the same period in the preceding year. This index has been climbing steadily throughout 2018, reaching an all-time peak of 44% y/y at the beginning of the first quarter of 2019.
Property prices, on the other hand, posted a contraction of 8.2% y/y, with the average house price in the Central region now at N$1.33mn compared to N$1.46mn at the end of December 2018. The average house prices in Windhoek, Okahandja and Gobabis are now at N$1 586 492, N$908 116 and N$1 046 000 respectively. Given increased transaction volumes in the region, we attribute slowing prices to a weakening domestic economy which puts buyers in a strong position to negotiate purchase prices.
Coastal property prices expanded by 8.9% y/y at the end of March, a significant rebound from a severe contraction of 38.0% y/y in the previous year. This expansion brings the average property price to N$1.04mn compared to N$951K at the end of March. This is the first-time property price growth in the region has entered positive territory since 2017Q3. Robust growth of prices in Swakopmund of 17.49% y/y is the driving force behind this acceleration. Property prices in Walvis Bay and Henties Bay contracted by 25% y/y and 53% y/y respectively.
Meanwhile, transaction volumes have continued declining from a peak of 76.5% y/y in the third quarter of 2018, reaching a new low of 22.7% y/y at the end of March 2019. In the same period last year, the Coastal volume index stood at 44.2% y/y. This downturn in volumes emanates from slowing activity in the small segment. We have noted, however, that sales activity in the large segment has improved significantly, with an increase of 38.1% y/y at the end of March 2019 compared to a contraction of -10.5% y/y at the end of March 2018.
Northern property prices are still growing albeit at a slower rate. Price growth is down to 0.3% y/y at the end of March 2019 compared to the March 2018 figure of 12.3% y/y. The average price of a property in this region now stands at N$919K.
There is increased demand for residential property in the North - volumes have continued to climb, improving from 6.2% y/y in March 2018 to 43.4% y/y at the end of March 2019. Growth across all four segments is in positive territory, with the small and medium segment continuing to accelerate at rates of 39.0% and 25.5% respectively, while the large and luxury segments are growing at 19.6% and 2.2% respectively.
Property development activities are expected to pick up in this region owing to the Oshakati Town Council’s plans to drastically reduce the number of informal settlements in the region by providing more formal housing.
Southern property price movements remain volatile. After posting growth of 33.8% y/y at the end of March 2018, property prices have recorded slower growth of 9.9% y/y at the end of March 2019. This translates to an average price of N$896K for a property in the South compared to N$815K in the same period last year.
The South is the only region in which the volume index was negative at the end of March 2019, recorded at -4.5% y/y. This is a considerable contraction compared to an expansion of 56.4% y/y in the previous year. It is important to note that transaction volumes in this region remain extremely low with few properties changing hands. Most activity in the South remains in the small segment, with little to no transactions in the medium to luxury segments.
While 2018 saw considerable increases in land delivery, this trend has begun to reverse in the first quarter of 2019. Land delivery entered negative terrain, resting at -20.4% at the end of March 2019. Over the same period last year, this figure stood at 62%. This decline is attributed to weak land delivery across all four regions in the country which are all in negative territory and most pronounced in the Southern and Coastal regions. We expect land delivery to improve this year due to the increase in the budget allocation to the Ministry of Urban and Rural Development to be used for the servicing of land and for the provision of water, electricity and sanitations services. This is likely to ease pressures on land prices which have historically been persistently high.
Conclusion
Property prices remain under pressure in all regions across the country except for Coastal prices which have seen a significant uptick. Volumes have accelerated in the Northern and Central regions, possibly due to the completion and availability of housing units constructed under the mass housing project. Moving forward, we expect prices to remain subdued and volumes to tick up as more serviced land becomes available.
We anticipate most activity to be concentrated in the small segment as bank financing becomes readily available to low and medium-income earners for the construction and purchase of PolyCare houses. These houses, which are constructed using alternative sustainable materials, can be built within 10 working days at a much cheaper price. The National Housing Enterprise (NHE) has earmarked funds for the construction and upgrading of houses in informal settlements which will start in the Central region and later be rolled out to the rest of the country. In addition, the Oshakati Town Council intends to significantly reduce the number of informal settlements in that area with funds allocated to the servicing of land. Similarly, the formalisation of the DRC informal settlement is expected to commence this year. Thus, prices in this segment are expected to taper as more low-cost urban housing become readily available.
Methodology
This report is based on bonds registered in the names of natural persons at the Deeds Office and as such excludes all bonds registered in the names of juristic persons such as Close Corporations, Private Companies and Trusts. Rehoboth properties (Rehoboth has its own Deeds Office), farms, properties over 100,000m² and properties in industrial areas, are excluded, as these may not always be residential properties. Outliers below N$100,000 (2007 prices adjusted annually) are also excluded, along with further bonds (second, third, fourth, etc. bonds over the same properties). Exclusions were rigorously tested using existing data, to filter out as much noise as possible. Cash transactions are too, excluded due to a lack of data. Sectional bonds have been excluded into the housing index.
Bond values are used as a proxy for house prices, since there are no consistent records for house prices in Namibia and therefore prices shown should only be used as a general guide to property values. These values are aggregated by way of the mean value as the central measure of tendency to resist the fluctuation between different prices. Average house prices are smoothed using a twelve- month moving average, with the national value computed as a weighted average of regional prices. Whilst the information provided has been obtained from a credible source, the values quoted are indicative, and past performance should not be taken as a guarantee of future performance.
Disclaimer: The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting because of this publication is accepted by FNB Namibia Holdings Limited and / or the authors of the material.