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Market Review Dec '22 / Jan ' 23

House price index growth contracts as financial conditions tighten

House price index growth contracts as financial conditions tighten

The FNB residential property index printed a 12-month average contraction of 2.8% at the end of June 2022 compared to a growth of 4.7% at the end of the prior quarter and 9.6% over the corresponding period of 2021.





This sudden deceleration follows the onset of interest rate hikes in 2022, when the Bank of Namibia raised rates by cumulative 175bps over a period of 7 months. This further confirms our assumption that the record-low interest rates instituted in 2020 were supporting house price growth.

While supply-side challenges have been at the core of the housing market dynamics, waning demand on the back of the deteriorating macroeconomic environment is seemingly taking a toll on the market. This is justified by lower-than- expected sales of houses within the small housing segment – an unusual development by historic standards. The deteriorating macroeconomic environment has stifled housing affordability for buyers of smaller housing. In effect, sales volumes within the small housing segment posted a contraction of 0.8% y/y in the second quarter of 2022, from a growth of 7.3% y/y recorded in the same period of 2021.

Nonetheless, overall national house prices have remained fairly stable, with the 12-month national weighted average house price recorded at N$1 173 059 in June 2022, compared to N$1 211 382 in June 2021. The contraction in house prices was observed across all regions, with the deepest contraction of 20.8% y/y recorded for the coastal region down to N$1 253 000, followed by the southern region with 7.9% y/y to N$761 000, the central region with 4.0% y/y to N$1 564 000 and the northern region with the least contraction of 2.7% y/y to N$852 000 at the end of June 2022.
Beneath the surface of current conditions within the housing market is a growing concern about affordability and what constitutes housing affordability for both end-users and financiers across various price points. Admittedly, there appear to be no clear boundaries between the segments of the housing market above and beyond the house price categories from a market perspective. This could be ascribed to lack of up-to-date data on household income.

Periodic access to real-time data on household income would be a critical indicator for residential market development and affordability, particularly in the post-Covid-19 economic context. Independent segmentation of the housing market by developers is often marred by deliberate marketing moves that allow to influence the demand for apartments and their price. Thus, the higher the category of apartments, the greater the benefit for the developer. This approach continues to derail optimal delivery of affordable housing in our view. This calls for a more unified segmentation approach, while also ensuring that there is periodic access to real-time data on household income to guide targeted market interventions.
Rising inflation combined with rising interest rates continue to put pressure on consumers, particularly as job opportunities remain limited and wage growth stagnates. The housing market has not been shielded by this as evidenced by the contraction in prices since November 2021.

The housing market is one of the most important sectors of the market economy being as it is at an intersection point of interests for a wide range of economic players, such as investors (both individuals and legal entities), developers, realtors, insurers, bankers, lawyers, etc. The slowdown in sales activity particularly within the small housing segment, which has historically dominated the market, presents a huge risk for the development of the housing market and economic recovery in general.

For more information, please call Tel: +264 61 299 2222 or visit www.fnbnamibia.com.na

Frans Uusiku
Market Research Manager

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