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The FNB Residential Rental Index for the second quarter posted an annual contraction of 2.3% at the end of June 2021 from the -3.7% recorded at the end of the preceding quarter. The national weighted average rent has returned to its pre-Covid-19 levels of N$ 6 991, coming in at N$ 7 003 at the end of June 2021 from N$ 6 886 and N$ 7 022 recorded in March 2021 and June 2020, respectively. The moderate improvement in the rental index highlights a gradual recovery in rental occupancy rates and economic activity in general. Rental growth was specifically evident in the 1-bedroom and more-than-3-bedrooms segments, which grew by 2.2% and 2.9% y/y to N$ 3 634 and N$ 18 129 respectively. On the other hand, there is ample supply of 2-bedroom and 3-bedroom rental properties, resulting in rental contractions of 5.8% and 4.2% y/y to N$ 6 612 and N$ 9 615 at the end of June 2021, respectively. The 2-bedroom segment accounted for the highest share of overall rental listings of 46% in the second quarter, followed by the 1-bedroom (32%), 3-bedroom (17%) and the more-than-3-bedrooms (5%).



Rural towns that saw growth in rental prices were Rundu (52.6% y/y), Ongwediva (18.0% y/y) and Oshakati (1.3% y/y). Rehoboth also saw an annual rental growth of 23.7%. This southern town has consistently maintained a positive growth trajectory in rent prices. This is not surprising given the perceived high rental occupancy in that jurisdiction. The worst declines in rent prices were recorded in towns that are mostly dominated by the leisure market. These include Swakopmund (-30.8% y/y), Arandis (-28.9% y/y), and Walvis Bay (-16.8% y/y). Furthermore, Okahandja recorded rental contraction of 23.1% followed by Gobabis and Windhoek with -14.2% and -2.1% y/y, respectively.

Deposit to rent ratio

Overall, deposits charged by landlords contracted by 22.8% y/y at the end of June 2021 compared to a contraction of 30.6% y/y recorded in June 2020. The 2-bedroom segment recorded the deepest contraction of 24.2% y/y in deposit charged, further pointing to the issue of supply overhang. The 3-bedroom segment, on the other hand, recorded the lowest contraction in rental deposit of 8.9% y/y, implying that scope for negotiating a reduced rental deposit is relatively slim. Most notably, the deposit-to-rent ratio decelerated further to record lows of 4.3% at the end of the review period compared to the 5.8% recorded a year earlier.

Rental yields

Annual average rental yields slowed to 6.8% at the end of June 2021 from 7.9% a year ago. The much-anticipated implementation of the Rent Control Bill has been on the table for quite some time despite being finalized in 2018. Once promulgated into law, it intends to regulate the letting and hiring of non-commercial properties in areas where rent boards have been established. According to the Harambee Prosperity Plan report for the first quarter, the Rent Control Bill should be submitted before parliament for debate and subsequent promulgation by December 2021.

Conclusion

Although the rental index is starting to show some signs of recovery from the Covid-19 associated economic impact, further Covid-19 waves could damage the economy and consequently the rental market. As of 8 September, only about 4.6% of the population was vaccinated, far below the 60% herd immunity target set by the government. The implementation of the Rent Control Bill also presents downside risks to affordability for tenants. Given that the ceiling is set at 10% and the market-determined rental yields are at 6.8%, this gives room for landlords to push prices higher, thus putting the tenants under pressure in an already difficult economy.



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