Renter’s market a home truth

Jo-Maré Duddy – Potential tenants enjoy increasingly bigger bargaining power in the deposits they are willing to pay to rent a property in Namibia, the latest FNB Rental Index report shows.

Deposits charged by landlords at the end of last year contracted by 28% - or grew by -28% - compared to the end of 2018. At the end of December 2018, deposit growth was 6.4% on an annual basis.

Namibia’s deposit-to-rent at the end of 2019 hit a ten-year low of 6.5%, says Frans Uusiku, the market research manager at FirstRand Namibia.

“The persistently declining ratio continues to highlight the bargaining power the potential tenants have in the rental market on the back of a weak economy,” Uusiku says.

The negative growth was evident in all segments of the rental market, especially for houses with two bedrooms. It was less visible for one-bedroom homes, Uusiku says.

“We continue to 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,” he says.

Average rent in Namibia at the end of December was N$6 992, an increase of 3.6% year-on-year.

Swakop most expensive

“On a quarterly basis, Swakopmund recorded the highest rental prices in the fourth quarter of 2019, with the average rent recorded at N$9 274 per month,” Uusiku says.

Year-on-year, this translates into growth of 26.6%, a figure Uusiku attributes to the high number of three-bedroom houses that were rented. It also points to deteriorating affordability of houses in the coastal towns, he says.

Windhoek registered the second highest average of N$6 545 per month, contracting 2.5% on an annual basis.

According to Uusiku, annual contractions in the last quarter was also reported from Ondangwa (-34.7%), Rundu (-22.4%), and Ongwediva (-17.1%). Oshakati, with annual growth of 6.7%, was the exception.

Bedrooms

Two and three-bedroom houses made up 36.7% and 20.6% of all rental transactions in the last three months of 2019.

Average monthly rent for both these type of houses increased by single digits compared to the last quarter of 2018.

On average, a two-bedroom house rented for N$7 000 a month – N$283 per month or 4.2% more expensive. A three-bedroom house was available for N$10 251 per month on average, a monthly increase of N$639 or 6.7%.

“The notable price pressures are indicative of an increase in demand for these type of rental units as houses become unaffordable on the back of subdued real wage growth,” Uusiku said.

Cheaper to rent?

Namibia had a price-to-rent ration of 13 at the end of last year.

Uusiku explains: “The price-to-rent ratio is the ratio of home prices to annualised rent in a given location and is used as a benchmark for estimating whether it is cheaper to rent or own a property.

“As a general rule of thumb, a price to rent ratio of 1 to 15 indicates that it is much better to buy than rent; 16 to 20 indicates that it is better to rent than buy, where else 21 or more indicates that it is much better to rent than buy.”

Namibia’s ratio of 13 that the local housing market is “still relatively stable”, he says.

“However, the risk of households opting to hold onto to renting than to owning a house is starting to emerge as houses are becoming unaffordable.”

Making money

Uusiku says rental yields - an indication of the return a landlord is likely to earn on the rental of a property – showed a moderate increase of 7.9% year-on-year as at December 2019 compared to 7.5% realised over the same month the previous year.

“The uptick in rental yields is unsurprising given the continued improvement in the rental index, which is a good indicator of where the rental market is headed,” he says.

The FNB Rental Index showed a contraction of 0.8% at the end of December. This is a “steep improvement” from the negative growth 8.6% of the corresponding month in 2018.

“The continued recovery in the rental index growth is supported by price pressures stemming from the two and three-bedroom segments, which registered growth of 6.6% and 16.2% year-on-yea, respectively, compared to corresponding contractions of 10.2% and 11.7% year-on-year realised over the same period of the preceding year,” Uusiku says.

“By and large, the Namibian rental market remains competitive compared to other jurisdictions in Sub-Saharan Africa including Kenya, South Africa and Zambia where rental yields are 6.7%, 3.9% and 0.14% respectively,” he says.

Uusiku says the market could improve further along with the expected improvement in economic conditions.

“We therefore expect rental prices growth to mark a positive territory in the first quarter of 2020 before it stabilises along its long-term sustainable growth path.”