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Residential property prices weaken

Residential property prices weaken

The relative deeper contraction witnessed in the fourth quarter FNB House Price Index continues to point towards demand side risks emanating from weakening economic conditions, subdued real wage growth and high level of households’ indebtedness.

The index shows that the house price index growth has averaged -5.1% in Q4 of 2019 compared to -2.4% realised over the same period of 2018, bringing the average national house price to N$1 155 468 at the end of 2019.

Frans Uusiku, Market Researcher at FNB Namibia said residential property transactions have been largely skewed towards the small segment – a trend that can be traced back to early 2016.

He explained that the small segment contributed 70% of transaction volumes in 2016 and has gradually increased to 80.9% in 2019, while the market shares for the medium, large and luxury segments have consistently declined from 24.5%, 4.8% and 0.8% to 16.8%, 1.9% and 0.4% respectively over the corresponding period.

“The current dynamics in the housing market are largely a manifestation of an “economic story” and demand side constraints induced by a low growth environment that has dragged on since 2016. As a result, growth in disposal income has been under immense pressure, further creating affordability issues in the housing market. This is evident in the shift in activity towards the small segment across the four regions, although this trend is also seen to be slowly dissipating as economic hurdles lingers” Uusiku said.

Uusiku added while the decision by the Bank of Namibia ‘s monetary policy committee to reduce the repo rate from 6.50% to 6.25% and the resultant adjustments by commercial banks is a welcome development to support domestic growth, the pass-through effects of the reduced interest rates may be minimal to the already indebted households.

“Henceforth, reviving demand in the residential property market may require a structural shift in the extent of land delivery for housing. This will bring about a new state of equilibrium that responds to purchasing power of the economy,” Uusiku said.

Downside demand risks are expected to continue dominating due to the erosion of household spending power which means property prices will remain in the red, particularly in the medium to upper end of the market.


About The Author

Donald Matthys

Donald Matthys has been part of the media fraternity since 2015. He has been working at the Namibia Economist for the past three years mainly covering business, tourism and agriculture. Donald occasionally refers to himself as a theatre maker and has staged two theatre plays so far. Follow him on twitter at @zuleitmatthys

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