Perhaps, one day we shall afford property again
It may be a little too early to jump to conclusions but I sense a moderation in the property market. It may also be just wishful thinking, but given the broader picture, there are plenty signals that property, both residential and commercial, has crossed the upper limit of the curve.
At this stage my information is purely anecdotal, but I compare recent price developments to market conditions a year ago, and I certainly detect that some sense is finally entering the property sector.
Let me discuss a few examples I have noticed of late.
Several warehouses are to let in Windhoek’s Prosperita industrial area. A year ago, rents would typically fetch N$165 per square metre for property in the so-called AB bracket. For slightly less-endowed properties, rents were typically around N$135 /sqm. When I did a few enquiries this week, I was astonished to find that several warehouses booked in around N$102 /sqm in the middle segment of the value spectrum. That constitutes a reduction marginally under 25%. In property, that is very significant indeed.
The second example also comes from the rental market. Upmarket houses not used as diplomatic residences typically went for between N$16,000 and N$20,000 per month. Again, I was quite amazed to learn of several properties to let at monthly rentals below N$15,000. And these are all in the more affluent suburbs of Windhoek.
On the selling side, it has certainly been a seller’s paradise for the past five years. With nominal GDP growth inflamed to around 17% annually, it is no wonder that property prices appreciated in selected markets, by about 78% over the same period, according to the reputable, if slightly outdated, FNB Housing Index. Growth centres like Windhoek, Swakopmund and Walvis Bay have all been exposed to property bubbles but it must be noted that in other locales, property prices have actually receded lately. It is as if the ceiling has been reached in the balance between demand, available liquidity, and return on investment.
While Walvis Bay’s residential market is still boiling, conversations with estate agents in the harbour town indicate that prices have reached a plateau and that selling times have doubled. How long it takes to sell a property is another indication of where that demand, liquidity, RoI needle is hovering. Similarly, on the commercial side, while many investors are complaining about the cost and availability of property close to the harbour and in the Walvis CBD, realtors with new industrial stands on their books, complain that these units are slow to move, or do not move at all.
I am not well informed about the Swakopmund property market but I see many new developments, and for the first time in many years, the average older person can also look for a flat by the sea. In Langstrand, where I suspect the property bubble burst more than five years ago, I see more For Sale signs, than lawns. Property prices in Langstrand have been stagnant for several years, and there are many bargains available, in my view. I also see and hear from sellers in Langstrand that properties may take up to a year to sell.
If official policy embarks on a period of substantial stimulation, it must by necessity lead to an asset bubble if it was stoked the way we did. While liquidity is rampant, and banks are only too keen to finance the next, higher, property deal regardless of the inflationary nature of these deals cumulatively, then a significant number of new players keep entering the market. All these participants chase only profit, and since the profits are out of relation to other economic fundamentals, the process is self-reinforcing.
But at some point, saturation is reached, or at least approached. Suddenly, demand is subdued, the offerings abundant, and the prospective buyer or tenant can take his or her time to sift through the options.
As far as commercial property is concerned, if you build so many government buildings, at some points each and every one of the more than 100,000 government employees will have an own office. What happens to the rest of the capacity? What happens to the many older buildings in the CBD, privately owned but government rented, that are now running empty? Their owners must generate some income and one finds that there are ridiculously cheap office space available on the upper storeys of several older CBD buildings. Even the smelly sewerage systems and the unreliable lifts become bearable at deflated prices, and many new fledgling business move into these cheaper premises. This relieves the pressure on the areas adjacent to the CBD, and these more popular areas, also stagnate.
As I said, it is far too early to make a judgement but I will be keenly following the Housing Index to see if my superficial observations have any merit.