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Property is ablaze but everybody loses

The runaway cost of land and housing is defeating all the growth and progress made over the past five years. Two significant events over the past fortnight both contributed to drive this point home.
First, a noted analyst gave us a breakdown of the nominal increases in housing and land over a three year period. The detail is covered in another article elsewhere in this edition so I will only state that housing is now solidly out of reach for most, if not all, first-time buyers. Existing owners of property can only afford to pay the elevated prices for a new home, if they sell the one they have first. And then it is mostly a matter of shifting money from the front pocket to the back pocket. The mortgage more or less stays the same, or increases only incrementally.
Second, the by-now infamous auction of new erven by the City of Windhoek produced a major backlash when the Ministry of Local and Regional Government, Housing and Rural Development instructed the City of Windhoek to stop land auctions, and to nullify the results of the most recent auction. This week Thursday, the City said We’ll see about that!
It is obvious that housing is in a classic and severe asset bubble. But I am sure very few people are interested in the mechanics of why this is so, and are only concerned over the fact that they see their dwelling dreams fly away in an ever-rising spiral of property prices.
Asset bubbles arise when too much capital chase too few assets with the irrational hope, from the investor’s side, that the inflation will continue, and soon help to make the asset affordable. Notice my emphasis on “irrational”.

An asset bubble is when inflation for a particular asset outstrips general inflation or the “normal” inflation associated with related or ancillary assets. Housing and land are in inflationary bubbles that exceed even the most liberal definitions of inflation. Simply put, housing and land have become outrageous.
It must be noted that the first culprit is the Ministry of Finance with its aggressive pouring of liquidity into the broader economy.
The second culprit are the banks who are only too keen to finance property notwithstanding the very dangerous distortion that mortgages are approaching half of the banks’ loan books. Meanwhile, this is fuelled by unprecedented credit growth over which the Bank of Namibia is rightly concerned.
The third culprits are the municipalities, who, for a lack of both foresight and adequate funding, have become complacent over many years, until the backlog of land has grown to such proportions, it will take more than the entire Gross Domestic Product, to remove the imbalances.
Property prices are the result of these three factors combined and will continue to escalate as long as 1.) the government keeps fuelling the economy artificially with funds borrowed in the capital market, 2.) banks continue their over-reliance on mortgages to meet their own targets, and 3.) land remains in short supply.
Until any or all of these factors are removed, there is nothing any ministry can do to remedy the situation.
But once a property market is distorted, it is very difficult to normalise short of creating chaos and an eventual implosion of property prices.
This is not armchair philosophy, it has actually happened in Japan, Ireland, and most recently in Spain. As a matter of fact, it has happened in several other locales but not with the dire consequences as in these three jurisdictions.
There are also other, social aspects to consider. When an economy has entered a severe inflationary spiral, the mere expectation of more future inflation contributes to an increase in the velocity of near-term inflation.
 This means property prices are self-enforcing but they are also defeating all reasonable development objectives. The faster they grow, the less comes from all the good intentions to make affordable land available to lower income earners.
 This observation does not even consider the position of the very poor and the unemployed.
Finally, if the provision of housing is a key factor in a broader strategy to reduce poverty and income inequality, that strategy is defeated by property inflation.
In other words, the extremely high land and house prices benefit only a fraction (less than 5%) of the population who actually qualifies for financing for a modest dwelling. For the rest, it only leads to greater poverty and greater inequality.

About The Author

Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.