Rents continue to soar in Q1 of 2022
Inflationary pressures
The average asking rent for the more than three bedrooms units was recorded at N$19 329 at the end of March 2022
FRANS UUSIKUAs anticipated, rent growth continued to rally in the first quarter of 2022 - consistent with upward inflationary pressures witnessed across the world.
The biggest increase in rent came in from the more than three bed bedrooms segment - a trend that has surfaced for the past twelve months.
In effect, the average asking rent for the more than three bedrooms units was recorded at N$19 329 at the end of March 2022.
This is the highest level on record and highlights a high retention rate in the multi-family rental market. It implies that tenants could be renewing their leases at relatively higher rates than ever before due to increased competition and shortage of family apartments.
Overall, the twelve-month average rental index growth came in at 0.6% at the end of March 2022. This is the highest index growth recorded since May 2020. On the flip side, the twelve-month national weighted average rent came in at N$6 964 at the end of March 2022 from N$6 926 a year ago. This continues to affirm the sustained recovery of the rental market and economy in general, supported by the mining, tourism and agriculture sectors. Despite the observed mild economic gains, we nonetheless view the erosion of affordability as a critical risk factor in this recovery path, on account of subdued real wage growth in the context of rising inflation.
It therefore follows that; renters need huge income growth in a market where rent-to-income ratios are not improving despite rent hikes. We estimate the average rent-to-income ratio to hover around 39% - close to the affordability ceiling of 40%.
Without delving into the weeds on affordability, the two-bedroom segment registered rental price contraction of 5.3% year-on-year to N$ 6346 at the end of March 2022, while the one-bedroom and three-bedroom segments recorded rental price growth of 0.9% and 0.2% year-on-year to N$3 674 and N$9 657, respectively.
Regions
The regional breakdown shows the fastest rebound in rent price growth across the markets where home sales are increasing.
For instance, the 12-month average rent in Swakopmund and Walvis Bay contracted by 12.9% and 7.5% year-on-year compared to contractions of 29.9% and 28.8% year-on-year recorded over the same period of 2021, respectively.
Windhoek, on the other hand, recorded a contraction in average rent of 3.6% year-on-year at the end of March 2022 compared to a contraction of 4.0% year-on-year seen over the corresponding period of 2021.
We also believe the deep contractions in rent prices seen at the height of national lockdown could be attributed to increased competition between long-term and short-term leisure facilities. However, as Covid-19 vaccines become available and global leisure travels resume, easing competition pressure is also likely to support the pace of recovery in rental market.
Although the maturity of Namibia’s property market as measured by the level of capital liquidity in the market still leaves so much to be desired, rental yields have nonetheless remained stable, averaging 7.9% in the last 10 years and settling at 6.8% at the end of March 2022. While we view this as one of the key attributes for a stable financial sector in Namibia, the widening housing backlog in the country is arguably keeping the rental yields high and at levels above the prevailing average inflation of 4.0%. This, in turn, means that landlords earn a stable income and can weather a few bumps in the road, should they come, such as failed rental payments.
We are starting to see enormous household formation among renters in the upper income brackets, particularly in the space of multifamily units. We believe this is what’s helping feed demand for these new leases at high price points. Looking ahead, we expect rental prices to increase further even if house prices fall due to rising cost of utilities and lack of housing supply - sparked by a buoyant sales market.
Furthermore, the subdued real wage growth and rent-to-income ratio of about 39% would mean the majority of Generation Z or those that just joined the labour force would most likely prefer to still rent than buying a house due to associated costs of owning and maintaining a house in a high inflationary environment. As the rental market becomes more competitive, we are also likely to see landlords going to leverage on things like energy and water saving improvements to reduce costs for tenants, thereby making their properties more attractive and affordable without necessarily having to sacrifice rental income.