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Rental market exhibits resilience in the face of economic challenges

Rental market exhibits resilience in the face of economic challenges

The FNB Rent Price Index has demonstrated remarkable resilience, remaining positive for two consecutive quarters after emerging from contractionary territory in March 2023, according to an FNB statement released last week.

According to the statement, the 12-month average for Q3-2023 reached 4.7%, a slight decline from 5.8% in Q2-2023 and a substantial improvement from 0.1% in Q3-2022, with the average rent price standing at N$7 177.

Breaking down the data by bedroom size, the three-bedroom and more than three-bedroom segments experienced growth rates of 4.0% and 9.2%, respectively. In contrast, the one and two-bedroom segments saw contractions of 4.6% and 9.0% during Q3-2023. Average rent prices for the one, two, three, and more than three-bedroom segments are N$3 483, N$5 443, N$9 907, and N$22 703, respectively.

Despite a challenging economic backdrop, the average deposit charged also exhibited resilience, standing at 14.8% in Q3-2023, slightly down from 15.1% in Q2-2023 but significantly higher than the 3.6% recorded in Q3-2022.

This surprising resilience in the rental market comes against the backdrop of a high-price and elevated interest rate environment. During the review period, interest rates increased by a cumulative 400 basis points, with a 12-month inflation rate of 6.2%. Ordinarily, such a macroeconomic environment would limit price growth as landlords grapple with passing on rental increases amid deteriorating affordability.

A potential explanation for this anomaly is a trend among individuals to delay property purchases, opting to rent for longer due to affordability constraints and the prevailing elevated interest rates. The evident decline in house price transaction volumes by 27.7% in Q3-2023 supports this perspective. The resilience is particularly notable in the three-bedroom and more than three-bedroom segments, suggesting a nuanced response to economic challenges.

Looking ahead, expectations are for the rental market to maintain stability as inflation moderates and the repo rate holds steady at its peak of 7.75%, with a shallow cutting cycle anticipated through 2026. Additionally, changes in loan-to-value ratios effective from October 31, 2023, may incentivize investments in residential property, potentially increasing the supply of rental properties.

In conclusion, the rental market has defied expectations in the face of a weakened consumer environment, showcasing resilience throughout the first three quarters of 2023. As inflation is projected to ease over the next two years and interest rates are expected to have peaked in 2023, the rental market is anticipated to remain stable. The decision by individuals to defer property purchases in favor of longer-term rentals is likely to be a continuing factor supporting the rental market.


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