Housing market shows signs of contraction

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Windhoek

FNB Namibia has just released the latest housing index for May 2016 and market research manager of FNB Group Daniel Kavishe advises that the house price index growth has shown some recovery, compared to the first few months of the year, growing by 13 percent year-on-year (y-o-y) at the end of May.

However, the volume index continues to show substantial weakening in the market – recording a 14 percent decline in growth for the same period. The decline was specifically exaggerated at the coast recording negative growth of -42 percent y-o-y, and in the central area, where volume growth also contracted but by 12 percent y-o-y.

HIGH END MARKET
In terms of house segments, the largest decline in volume of transactions emanates from the high-end market (house prices over N$2.6 million) where growth contracted by 46 percent at the end of May.

“Prices in this segment, however, haven’t declined as one would expect with the extended drop in demand. Although high-end property price growth remains 22.4 percent higher compared to last year May, we expected lagged response to weakening demand in the segment,” said Kavishe.

RISING PRICES
FNB’s Housing Index also indicates that the middle and lower segment continued to enjoy strong price growth recording on average growth of 18 percent at the end of May. Volume growth in these two segments, however, remained poor, down 8 percent at the end of May.

The negative volume growth experienced over the past six months across all segments suggests future property price growth will drop to a more palatable 11 percent growth, but this assumption is based on a rebound in volume growth.

WHO IS BUYING?
Kavishe added some interesting demographics concerning house buyers. He notes that: “41 percent of the property is currently bonded through joint-bond facilities, followed by female house buyers with 31 percent of the market, while male buyers make up the remaining 28.1 percent.

“Deeds data reveals that most property is bought by individuals between the age of 30 and 39 years with the most common house buyer being 35 years old. Female buyers seem to be most prevalent between the ages of 22 and 32, while male buyers were more prevalent in the 33 years and older brackets.”

CENTRAL PRICES
Regarding the geographical split in the central region, prices continue to grow at 14.4 percent despite volumes declining by 12 percent y-o-y.

Analysing Windhoek specifically, the median house price is currently N$1.3 million, which is 10.5 percent higher than average Windhoek house prices in 2015.

High-income suburbs have begun to show signs of decline. In Kleine Kuppe prices have dropped by one percent, while Auasblick and Olympia prices have declined by 12.1 percent and 2.2 percent respectively.
However, low income areas such as Okuryangava, Khomasdal, Katutura and Rocky Crest recorded strong price growth.

COASTAL PRICES
At the coast, prices grew by 15.2 percent as volumes declined by 42 percent y-o-y. In the high-end of the market, no growth in property prices was recorded across the major towns.

Growth, however, was recorded in property prices in the middle to lower segment of about 5 percent y-o-y. Swakopmund recorded the highest growth in prices (28.2 percent y-o-y) setting median price at N$1.2 million at the end of May.
In Walvis Bay, prices grew by 6.2 percent, setting the median price of a bonded house in that area at N$800 000.

NORTHERN MARKET
Northern towns continue to grow favourably. Volumes increased by 23 percent at the end of May, while prices increased by 14.1 percent to the new median price of N$605 000.

Katima Mulilo and Ongwediva drove the volume growth. In terms of prices, the respective towns grew by 30.1 percent and 17.3 percent at the end of May. Prices in Oshakati were down 21.5 percent while in Otjiwarongo, prices were down 22.8 percent.
Kavishe noted that the decline in price growth is potentially seasonal, rather than an indication of a slowing market as average growth (in prices) in these areas for the year remains well above 10 percent.

MARKET OUTLOOK
In conclusion, Kavishe noted that several dynamics are currently working simultaneously in the housing market.
Other than the substantial drop in transactions at the high-end, and lower-than-expected activity at the coast, market prices seem to be slowing down in tandem with the rest of the economy, which decelerated to 3.5 percent growth in the first quarter.

“After disposable income barely grew last year and two quick interest rate hikes this year, spending power has been eroded and, therefore, we expect house prices to decelerate to 11 percent growth by year end.

“The higher end of the property ladder is expected to feel the brunt of this deceleration. Under these conditions, we expect a certain degree of downsizing, whereby property prices in the upper price segments decelerate and prices in the middle to lower price segment accelerate as we witnessed during the financial crisis of 2009.

The anticipated increase in mass houses will add downward pressure on property prices, Kavishe concluded.

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