Rental Index growth surges to 7-year high

Key Highlights

• The rental index 12-month average growth increased to 9.7% in Q1-2024 from 7.2% in Q4-2023 and 0.3% in Q1-2023.
• The national weighted average rent increased to N$7 611 in Q1-2024 from N$7 257 in Q4-2023 and N$6 972 in Q1-2023.
• Rental yields increased slightly to 7.5% in Q1-2024 from 7.1% in Q4-2023 and 7.0% in Q1-2023.
• Rental yields remain above inflation, which stood at 5.4% on a 12-month rolling average basis in Q1-2024.

The FNB Rent Price Index increased to 9.7% in Q1-2024 from 7.2% in Q4-2023 and 0.3% in Q1-2023. This was the highest growth observed in the past 7 years. The average rent price on a 12-month rolling basis stands at N$7 611.

The dynamics in the rental market are not in line with what would be expected in a high price and elevated interest rate environment. The higher demand for rent is possibly driven by the current high interest rates, impacting the price of mortgages and causing consumers to rent for longer, coupled with the increase in expat arrivals enabling landlords to pass on higher rental prices to prospective tenants.
Rental Breakdown

The number of rentals increased quarter-by-quarter but decreased materially on a year-on-year basis. Residential rental listings totaled 520 units in Q1-2024 from 509 units in Q4-2023 and 1 797 listings in Q1-2024. The 1-bedroom segment remains the highest share of residential rental listings at 53.5% – a slight improvement from 48.5% in Q4-2023, while the 2-bedroom, 3-bedroom and more than 3-bedroom segments shares sit at 25.6%, 14.6% and 6.3% respectively. It may be that the adjustments in the loan-to-value ratios which came into effect on 31 October 2023 will increase rental units over the coming quarters.

Deposits
Average deposit growth in Q1-2024 reduced to 8.4% from the revised 13.8% in Q4-2023 whilst still above the 7.1% in Q1-2023. This reduction in deposits suggests that landlords are responding to household monetary pressures and charging slightly lower deposits to attract more tenants. Rental deposit requirements are still a voluntary practice in Namibia.



Rental Yield
The gross rental return on a residential property for Q1-2024 was estimated at 7.5% on a 12-month rolling basis, with the average house price unchanged from the previous quarter, the rental return is slightly above the previous year’s 7.0%. Rental yields during Q1-2024 remain above inflation, which stood at 5.4% over the same period. This translates to a real return of 2.1% on rental properties.

Conclusion
The rental market continues to trend upwards despite a general weak consumer environment. Although the rental unit listings increased on a quarterly basis, they have significantly reduced year-on-year which could be a contributing factor to the increase in rental prices observed from the supply side. From the demand side, the high interest rate environment continues to strain household spending which negatively impacts mortgage purchases. This increases the demand for rental units. Whilst landlords attempt to assist consumers by reducing deposits charged, the influx of expats continues to drive the rental market price. Households will probably continue delaying the purchasing of property until the cutting cycle commences from Q4-2024, coupled with the easing of inflation.


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