Annual growth in property prices reaches 9-year low
The subdued economic environment has continued to cast a pall on house prices, with the FNB House Price Index contracting by 3.7% year on year at the end of June 2019 compared to a contraction of 2.0% over the same period last year.
The poor showing in the index is the worst performance recorded since 2009 and comes on the back of price contractions across all four regions in the country.
The contraction brings the average national house price at the end of June 2019 to N$ 1 066 908, which is similar to the mean price recorded in February 2016.
The Volume Index recorded growth of 27.4% year on year at the end of June 2019, driven solely by growth in the small housing segment. While this is an improvement from the growth of 17.4% recorded over the same period last year, we have noted that growth in transaction volumes has been decelerating over the course of the year.
The slowing activity and declining prices in the property market reflect weak demand and a deteriorating outlook with regards to the state of the overall economy. We thus expect property prices to show little growth, as risks to the economy remain tilted to the downside.
Accommodative monetary policy to support property market
Bank of Namibia announced a 25-basis point cut in the repo rate at its recent monetary policy meeting, bringing the repo rate down to 6.50%. Using the FNB Home Base Loan Rate, this would imply that the monthly repayment amounts for a bond valued at N$1 100 000 taken over a period of 20 years would decrease from N$11 729.19 to N$11 540.34.
Ordinarily, the effects of a lower interest rate on the uptake of mortgage credit would be observed in the market after 12 months. However, we do not expect these dynamics to play out in the property market given that a 25bps cut is unlikely to provide sufficient stimulus to induce a turn in the property market. The interest rate cut will, however, offer marginal relief to already indebted consumers.
In addition to the repo rate cut, Bank of Namibia announced changes to Loan-To-Value (LTV) regulations implemented in 2017, which will reduce the deposit percentage required to purchase a property. These ratios were initially implemented to curb excessive uptake in mortgage credit which was seen to be fuelling the overheating of the housing market and thus posing a threat to the stability of the overall financial system.
Given that the property market has since started to lose ground, the central bank took the decision to review these ratios as a stimulus measure to curb the slowdown in the housing market. Much like the changes to the repo rate, the new LTV ratios will provide some support in terms of affordability but will not spur a significant improvement in the overall property market.
We maintain our view that a significant overall improvement in the property market will largely depend on higher disposable incomes through increases in real wages.
We do not see the situation in the property market improving given the depressed economic environment, the precarious unemployment situation and anaemic consumer spending. We therefore expect the housing market to remain in the red, with any improvements likely to be slow and gradual. We are of the view that a turnaround in the economy that will bolster real wage growth and consumer spending is the vital catalyst that will place growth in the property market on a stronger footing.Ruusa Nandago (Marketing Research Manager)