Ideas to reduce soaring house prices
One of our banks announced the other day that the price of residential property in Namibia worldwide increased the second most after Dubai.
I also see in the media that the people are asking government to lower the house prices and I agree that house prices in Namibia are way too high, especially in Windhoek where there are a number of factors responsible for these unrealistic prices.
The price of a house is and should be market driven. That means that it is a matter of supply and demand. The higher the supply, the lower that price would be because the owner wants to sell and the buyer has a huge choice of houses to consider. The market is at work and the price will be established according to the supply and demand ratio.
In other words – and especially in Windhoek – we have a relatively small supply of residential properties being chased by an ever increasing number of people migrating to the capital. The last count I saw was that Windhoek now has more than 325,000 residents.
To allow the market to naturally reduce the house prices the supply must be significantly increased or the demand must reduce.
A reason the demand quite recently increased is because the members of the GIPF are now getting the benefit of their pension fund offering guarantees for house purchases.
Property speculators in Windhoek are also increasing the demand because it has become a very attractive way to rather quickly make a handsome profit by quickly selling the property again.
The Receiver of Revenue has legislation in place to prevent such speculators from pocketing such profits as tax-free capital profit in stead of a taxable income if the intention of the speculator was to quickly make a profit.
If the Receiver would apply the law, it would very likely result in lower house prices because the demand would be lower. It would therefore be unnecessary to look at new legislation to drive down house prices. Just apply the existing legislation. Another factor driving house prices sky high is that some property developers, as part of their profit for a housing project, would take one or two of the units for themselves so as not to have to show it as a taxable profit from the project.
Then, at a later stage, they would sell the property to show the profit as a capital amount which is tax free. Again, if existing legislation in this regard is applied, it would become far less attractive and would again contribute to lower house prices.
One of the main reasons why Dubai pipped Windhoek in the race for the highest increase in property prices is the simple fact that there is a huge amount of money chasing very few properties in an area where room for expansion is seriously limited.
Windhoek has far more leeway to expand and is mainly limited by the existing resources and specifically the water supply which would eventually either increase somehow or will dictate how many people can live in Windhoek.
The way this is likely to happen is on exactly the same basis that house prices are established. The higher the demand, the more expensive our water will become and eventually, if nothing is done about these matters, Windhoek is likely to beat Dubai with the price of a house as well as a litre of drinking water.