Tight liquidity dampens run-away property market
Despite demand still outstripping supply, bank’s balance sheets that are significantly overweight on mortgages, and tight liquidity, have had a major dampening effect on price growth in the property market.
Whereas property prices has more or less doubled from 2010 to 2015, price growth slowed considerably during the first half of 2016. It was only during the third quarter that prices rebound. Available stock, however, remained limited. This, coupled with bank’s reluctance to extend credit, lead to much reduced transaction volumes.
For the third quarter of 2016, the property market bucked the slowing trend, jumping back up by just over 25% compared to the third quarter of 2015.
“Property prices rebound in the third quarter of 2016 as the FNB Housing Index recorded a 27% increase compared to the same quarter in 2015” the bank stated this week when it released the first index chapter for this year.
The growth was fuelled by central and coastal properties as is seasonally expected during the third quarter. “The movements were largely driven by higher prices in the upper segment – approximately 34% higher across the two regions- and faster than expected price inflation in the lower-end, approximately 23% higher across the two regions”, said Daniel Kavishe, Market Research Manager at FNB Namibia, and compiler of the index.
Transaction volumes have continued to decline for 10 straigth quarters. For the third quarter, it declined by 17% compared to the third quarter in 2015. This is a clear sign of constrained liquidity in the current financial crisis that originated from the government’s inability to continue financing its expenditures from the capital market.
But despite the declining transaction volumes, prices kept going up. At the end of the third quarter the median price printed at N$900,000 or 13% higher than in the thrid quarter of 2015.
Swakopmund and Hentiesbaai recorded the highest median prices at N$1.2 million per unit while Windhoek came in slightly higher at N$1.4 million.
Kavishe added, “We remain cautiously bearish on the property market, despite the price recovery during the third quarter. The limited supply around stand-alone units has kept the prices elevated across most regions despite demand waning. We anticipate further weakness in demand in central Namibia, but improvements across the northern and coastal towns”.
Looking forward, Kavishe expects price growth to have tapered down to between 10% and 13% at the end of 2016. The 12-month cumulative growth in volumes remains negative at -20% which will only turn positive again when liquidity improves. For the time being, the property market is held hostage by the government’s financial woes.