Housing bubble a home truth
Unless Namibia can escape the recession and consumers have more buying power, the housing market will remain in the red.
Jo-Maré Duddy – The recession and the over-indebted consumer have driven the average house price in Namibia down to that of 2016, the year in which economic growth started spiralling down.
“The subdued economic environment has continued to cast a pall on house prices, with the FNB House Price Index contracting by 3.7% year-on-year at the end of June 2019 compared to a contraction of 2.0% over the same period last year,” says the market research manager at FNB Namibia, Ruusa Nandago.
“The poor showing in the index is the worst performance recorded since 2009 and comes on the back of price contractions across all four regions in the country,” she says in the latest FNB Residential Property Report, released Monday.
Nandago says the contraction brought the average national house price at the end of June this year to N$1 066 908, which is similar to the mean price recorded in February 2016.
FNB Namibia’s findings follow on the heels of the International Monetary Fund’s latest Staff Report on Friday, in which it says the estimated house price overvaluation in Namibia is still around 8%.
Nandago says the risk of further declines in house prices remains elevated, as risks to the macroeconomic outlook remain on the downside and disposable income growth comes under pressure.
Turn-around unlikely
“While the rate of uptake in mortgage credit is still positive – recorded at 7.6% y/y at the end of June – we have noted that the overall trend in mortgage credit extension has been slowing. With consumer demand waning, we do not expect that the recently announced repo rate cut and the change in LTV [loan-to-value] regulations will turn the property market around,” she says.
When the Bank of Namibia (BoN) last month lowered its repo rate by 25 basis points to 6.5%, governor Iipumbu Shiimi also announced an adjustment in LTV ratios. In theory, this should make it easier for consumers to buy additional houses to the one they live in.
The BoN implemented the current LTVs in 2017 to mitigate the impact of an overheating housing market on the financial system. The new ratios will only come into force once gazetted by the minister of finance.
FNB Namibia maintains the view that a significant overall improvement in the property market will largely depend on higher disposable incomes through increases in real wages.
“We do not see the situation in the property market improving given the depressed economic environment, the precarious unemployment situation and anemic consumer spending,” Nandago says.
“We therefore expect the housing market to remain in the red, with any improvements are likely to be slow and gradual. We are of the view that a turnaround in the economy that will bolster real wage growth and consumer spending is the vital catalyst that is will place growth in the property market on a stronger footing,” she adds.
Prices
According to Nandago, central property prices showed a contraction of 6.1% y/y at the end of June 2019 compared to a growth of 0.3% y/y observed over the same period last year.
“This contraction brings the average house price down to N$1.4 million compared to N$1.5 million recorded over the same period last year.”
The negative growth was driven by slowdowns across all segments, she says.
The coastal region is the weakest performer with property prices showing a deeper contraction of 11.4% compared to a contraction of 2.6% over the same period last year, Nandago says.
In the luxury segment at the coast, no transactions have taken place since November 2017.
The average house price in the region has come down to N$1 025 000 compared to N$1 157 000 recorded in June 2018.
Northern property prices have also continued to retreat, contracting by 6.5% y/y, compared to a growth of 5.3% recorded over the same period in 2018.
The average house price in the North is now N$822 000, the lowest it has been this year, Nandago says. In June 2018, it was N$879 000.
The price index for South contracted 5.1% y/y compared to growth of 2.2% last year. The average house price is now N$832 000 compared to N$877 000 in June 2018.
“The subdued economic environment has continued to cast a pall on house prices, with the FNB House Price Index contracting by 3.7% year-on-year at the end of June 2019 compared to a contraction of 2.0% over the same period last year,” says the market research manager at FNB Namibia, Ruusa Nandago.
“The poor showing in the index is the worst performance recorded since 2009 and comes on the back of price contractions across all four regions in the country,” she says in the latest FNB Residential Property Report, released Monday.
Nandago says the contraction brought the average national house price at the end of June this year to N$1 066 908, which is similar to the mean price recorded in February 2016.
FNB Namibia’s findings follow on the heels of the International Monetary Fund’s latest Staff Report on Friday, in which it says the estimated house price overvaluation in Namibia is still around 8%.
Nandago says the risk of further declines in house prices remains elevated, as risks to the macroeconomic outlook remain on the downside and disposable income growth comes under pressure.
Turn-around unlikely
“While the rate of uptake in mortgage credit is still positive – recorded at 7.6% y/y at the end of June – we have noted that the overall trend in mortgage credit extension has been slowing. With consumer demand waning, we do not expect that the recently announced repo rate cut and the change in LTV [loan-to-value] regulations will turn the property market around,” she says.
When the Bank of Namibia (BoN) last month lowered its repo rate by 25 basis points to 6.5%, governor Iipumbu Shiimi also announced an adjustment in LTV ratios. In theory, this should make it easier for consumers to buy additional houses to the one they live in.
The BoN implemented the current LTVs in 2017 to mitigate the impact of an overheating housing market on the financial system. The new ratios will only come into force once gazetted by the minister of finance.
FNB Namibia maintains the view that a significant overall improvement in the property market will largely depend on higher disposable incomes through increases in real wages.
“We do not see the situation in the property market improving given the depressed economic environment, the precarious unemployment situation and anemic consumer spending,” Nandago says.
“We therefore expect the housing market to remain in the red, with any improvements are likely to be slow and gradual. We are of the view that a turnaround in the economy that will bolster real wage growth and consumer spending is the vital catalyst that is will place growth in the property market on a stronger footing,” she adds.
Prices
According to Nandago, central property prices showed a contraction of 6.1% y/y at the end of June 2019 compared to a growth of 0.3% y/y observed over the same period last year.
“This contraction brings the average house price down to N$1.4 million compared to N$1.5 million recorded over the same period last year.”
The negative growth was driven by slowdowns across all segments, she says.
The coastal region is the weakest performer with property prices showing a deeper contraction of 11.4% compared to a contraction of 2.6% over the same period last year, Nandago says.
In the luxury segment at the coast, no transactions have taken place since November 2017.
The average house price in the region has come down to N$1 025 000 compared to N$1 157 000 recorded in June 2018.
Northern property prices have also continued to retreat, contracting by 6.5% y/y, compared to a growth of 5.3% recorded over the same period in 2018.
The average house price in the North is now N$822 000, the lowest it has been this year, Nandago says. In June 2018, it was N$879 000.
The price index for South contracted 5.1% y/y compared to growth of 2.2% last year. The average house price is now N$832 000 compared to N$877 000 in June 2018.
Kommentaar
Republikein
Geen kommentaar is op hierdie artikel gelaat nie