House supply must grow five fold
The FNB House Price Index fell by 2.5% in February, but house prices still remain 21% higher than the same period last year. Namene Kalili, Manager of the Research and Competitor Intelligence unit at FNB Namibia said that this figure is somewhat lower than the annualised growth for 2012 which stood at 25% and thus indicates that house prices are decelerating for now.
He added: “Property prices grew fastest in the lower price segments, while contracting in the upper segment. Although the volume index continued to fall on a month to month basis, this was to be expected given historical trends. The annualised figures show that volumes have surpassed the February levels seen over the past four years and may be indicative of a recovery in volumes. The central and coastal property markets were largely responsible for the increased volume growth. Volume growth in the upper price segment drove the trend in the central market, while volume growth in the middle price range drove the trend at the coast. Land delivery remained weak as only 17 stands were mortgaged through the month, while developers mortgaged 94,200m² during February with a maximum yield potential of 220 free standing homes.”
For February, house prices declined by 3% from the previous month due to a shift in the housing mix, where volumes fell in the middle to upper price segments, while increasing in the lower price segment. When considering the coast, it becomes apparent that coastal property prices increased by 1% month on month. Kalili said “Although there is an increase, prices are pretty much at the same level they were a year ago, hovering around the N$550,000 range. Coastal property prices have begun recovering from their seasonal dip, with improved house prices across all price segments, particularly in the lower price segments.”
Regarding northern house prices, the Index states that these fell by a further 4.6% month on month to bring the year to date decline to 7.1%. The downward price pressure came from the middle to upper price segments that experienced price compression, where house prices fell 3% and 7% respectively. Despite these declines, northern property prices still remain 11% higher than they were a year ago. Kalili stated that house prices in the southern property market remained volatile due to very thin volumes as house prices increased by 10.8% month on month. This helped reduce the year on year decline in southern house prices from -14% to -2.3% in February.
“According to our calculations the market is under-supplied by 80%. It is this supply imbalance, along with a shift in housing mix, in favour of more expensive properties, that is currently driving the trend in local house prices. There is very little evidence that this will change during 2013 as new housing supply would need to grow five-fold to reach equilibrium. Based on current land delivery rates and developer activity, we do not foresee such a strong growth in housing supply and therefore house prices are expected to remain stubbornly high for 2013,” concluded Kalili.