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Slow demand cripples property market

Mon, 27 June 2016 16:24
by Donald Matthys
Business

Growth in the property development sector has slowed down, property giant Oryx Properties has said.
Carel Fourie, Chief Operations Officer at Oryx Properties said that generally there are less property developing deals being done, adding that land prices are still elevated, construction costs has escalated and interest rates are higher.
Meanwhile, there has been a slight slowdown in the growth of mortgage loans and other private sector credit, which is expected to continue going forward as interest rates rise.
“This generally makes investing more difficult, as less deals become feasible. In terms of acquisition of properties, the fact that there is still 12% transfer duty payable on commercial properties makes it very expensive to buy property. Residential demand will also slow, especially from investors, as banks have mostly amended their deposit policies,” Fourie told The Villager.
The property slowdown can also be attributed to the ever increasing house prices, as according to the FNB House Price Index, of 2014, Namibia recorded the second highest house price increase in the world in June that year, a step down from Dubai. Meanwhile, the Real Estate and Business Sector grew by 1.9% in the first quarter of 2016 compared to 3.8% in the first quarter of 2015.
 However, large construction activities by the public sector have been completed during 2015. Although at a slower pace, the construction sector grew by 0.2% compared to 34.5% recorded in the first quarter of 2015 and 27.8% recorded in the prior quarter. Specifically, the net rental income for Oryx Properties increased by 19.0%, and rental cash flow increased by 31.5% on the back of the Maerua Mall expansion and the acquisition of Gustav Voigts during 2014.
Commitment of big firms on long-term contracts and sectorial contribution towards largely property development varies, Fourie said, noting that some companies are no longer willing to take views longer than 5 years, while others does not want to take views less than 10 years. He added that generally, companies are more cautious and will not rush property decisions anymore.
“GDP growth directly affects both commercial and residential property markets, as this drives uptake of newly developed space. The future will still hold good returns, albeit we do see some slowdown in developments during the next two years at least. The main barriers are still the elevated land prices, lack of sub-contractor skills and high construction cost due to most materials having to be imported,” Fourie said.
The property giant slumped from a heavy profit taking off just above N$94 million in the 2010/11 financial year to just above N$37 million in the last financial year recorded as of end of June this year; the company’s financial statement shows. In 2015, Oryx Properties also recorded that operating profit grew by 42.7%, while profit for the year grew by 79.0%, mainly due to the revaluation of property during the year amounting to N$179.36 million, while in 2014 it stood at N$71.46 million. Finance costs for Oryx Properties increased by 46.2% due to debt held for the full 2015 year, compared to only being held for a portion of 2014.
“The construction sector, which drove the Gross Domestic Product (GDP) during 2015, has slowed down significantly. We believe this to be a result of the problems faced by the City of Windhoek as a result of the water crisis as well as a slowdown in demand in the residential property market. This we can see from the sharp decline in the growth rate of private-sector credit extension (PSCE),” Simonis Storms Securities said.
SSS noted that the supply of water remains a major challenge in Namibia and has affected other growth sectors such as the construction sector. The City of Windhoek increased their water saving target to 40% compared to 25% required previously. This sector will remain under pressure as the drought persists. Furthermore, sectors that are big consumers of water (construction, manufacturing) will be affected negatively.
The FNB House Price Index also indicated that at the end of the third quarter of 2015 central property prices grew substantially with data from Windhoek indicating a 27.0% growth in median prices while prices in the Okahandja area grew by 13.8%.
“In Gobabis, property prices grew by 16.3% while number of transactions tripled in that area. In Windhoek, prices in Academia suburb increased by 76% pushing median prices to N$1.9 million. In Cimbebasia median prices have increased to N$1.6million but offer better value for money based on the average stand size of 341square metre compared to central Windhoek,” the report showed.