Namibia: Rental Index Remains Resilient

The domestic rental market has defied the weak consumer environment, remaining resilient during the first three quarters of 2023. This is as economic analysts expect inflation to moderate over the course of the next two years and generally, interest rates are anticipated to have peaked in 2023, with the cutting cycle to begin in the latter part of 2024.

Furthermore, analysts expect the rental market to remain stable as these dynamics play out, with the decision by individuals to delay the purchasing of properties and rent for longer expected to continue propping up the rental market.

After moving out of contractionary territory in March 2023, the latest FNB Rent Price Index remained positive for two consecutive quarters, reaching a 12-month average of 4.7% in Q3-2023 from 5.8% in Q2-2023 and 0.1% in Q3-2022. The FNB Rental Index, authored by FNB analyst Ruusa Nandago and released last week, shows the average rent price on a 12-month rolling basis stands at N$7 177. When considering bedroom size, the three-bedroom and more than three-bedroom segments grew by 4.0% and 9.2% respectively, while the one and two-bedroom segments contracted by 4.6% and 9.0% during Q3-2023. Average rent prices are N$3 483, N$5 443, N$9 907 and N$22 703 for the one, two, three and more than three-bedroom segments respectively.

The growth in the average deposit charged has also been remarkably resilient during 2023, and stood at 14.8% in Q3-2023, compared to 15.1% in Q2-2023 and 3.6% in Q3-2022. According to FNB analysts, the resilience of the rental market is a surprising outcome, given the high price and elevated interest rate environment during this period. Interest rates increased by a cumulative 400bps during the period in review, while the 12-month inflation rate stood at 6.2%.

“A constrained macroeconomic environment would ordinarily limit price growth as landlords struggle to pass on rental increases to existing tenants amid deteriorating affordability. Additionally, in this scenario, landlords would be willing to bargain lower rental prices and deposits with prospective tenants,” read an FNB statement. The statement added that a potential explanation for this conundrum is that individuals are delaying purchasing property and choosing to rent for longer, given the elevated interest rate environment and affordability constraints. “The significant decline in house price transaction volumes (-27.7% in Q3-2023) corroborates this view. These dynamics may explain why the resilience is mostly observed in the three-bedroom and more than three-bedroom segments, rather than in the lower bedroom segments,” FNB stated.

Moving forward, FNB expects the rental market to remain fairly stable as inflation starts to moderate and the repo rate remains at its peak of 7.75% with a shallow cutting cycle through to 2026.

“We also take note of the adjustments in the loan-to-value ratios which became effective on 31 October 2023, which might incentivise investments in residential property, thereby increasing the supply of rental property,” the bank stated.