FNB Namibia has warned that Namibian households could be forced to downscale their lifestyles by seeking out cheaper accommodation options as economic pressures continue to bite, impacting the recovery of the country’s rental market.
“Although the rental market had recovered somewhat between the second half of 2021 and the first quarter of 2022, agents and landlords should remain mindful of the negative effects of the current macroeconomic environment on tenants’ ability to pay their rent. The continued financial hurdles consumers face could force households to downscale their lifestyles by seeking cheaper accommodation options, which would further derail a complete rental market recovery,” the FNB Namibia second quarter residential rental report noted.
The FNB rental index retreated into negative territory during the period under review, posting a contraction of 1.7% at the end of June 2022, with price reductions recorded in the one-bedroom and two-bedroom segments.
“This unexpected setback was mainly driven by a price contraction of 7.7% year on year within the two-bedroom segment, which reached a 12-month average level of N$6 102 – the lowest in six years. This highlights the impact of a sudden economic shock on households, characterised by rising interest rates, inflation and fuel prices. Similarly, the one-bedroom and three-bedroom segments also disappointed on the downside albeit by a smaller degree, posting rental contractions of 0.3% and 1.8% y/y at the end of June 2022 to N$3 611 and N$N$9 446, respectively.”
Rising interest, with another 100bps hike in the repo rate before the end of 2022, which would lift the prime rate from 9.25% to 10.25, could drive Namibians to rent rather than buy, providing a boon for the rental market.
“On the flip side, rising interest rates and subsequently the reduced appetite to borrow may also mean that some high-income tenants may decide to keep renting instead of buying their properties, which will have the opposite effect.”
This comes as the Bank of Namibia has found overall, growth in credit extension to the private sector has remained in the single digits since November 2016 and longer than ever before in the post-independence history of Namibia.
The FNB report found that landlords continue to be hard-hit by high property maintenance costs, with minimum relief coming through passing costs to tenants.
“It is becoming increasingly more expensive to maintain a home compared to a year ago due to the higher cost of building materials such as steel and other essential household amenities. Rising interest rates are also lifting bond instalments, yet it is difficult for landlords to pass on sharp cost increases to tenants in the current difficult economic environment. Looking ahead, we expect nominal rentals to continue to rise slowly in the next year, but at a lower rate than the consumer inflation rate.”
