By: Nghiinomenwa-vali Erastus
Property owners are facing one of the worst dilemmas caused by various macroeconomic variables beyond their control.
Mortgage instalments are up, building material inflation is on an upward trajectory; however, landlords and developers will be too careful to pass on this cost to tenants as other factors already burden them.
The latest FNB Residential Rental Index for the Second Quarter of 2022 shows that rental units pushed/supplied to the market have reduced by 70 per cent, and the weighted rental cost has also fallen.
The rental index for the quarter has shown that the economic dynamics cannot sustain the positive growth experience for the two months in the quarter, as by the end of June, it has jumped into negatives, contracting by 1.7 per cent.
Property owners and developers of the two-bedroom properties are the ones who have fueled the contraction in the index as the cost of two-bedroom units decreased by 7.7 per cent by the second quarter.
This brought the national weighted 12-month average cost of the two-bedroom property to N$6 102, reaching its lowest price in six years, the report revealed.
This can be considered good news to the substantial urban populations that depend on rent for accommodation.
However, according to the research analysis, the reduction in rent prices is due to the burden on households brought by the three major macroeconomic variables; fuel cost, interest rate, and inflation.
It is not only the two-bedroom property that has recorded a price decline, but even in the lowest rental segment, one-bedroom unit prices have reduced by 1.8 per cent, and the national average is now around N$3 611.
Although the rental market has recovered somewhat between the second quarter of 2021 and the first quarter of 2022, agents and landlords are being cautioned to be mindful of the burden as the cost of living rises, affecting their ability to afford rental prices.
The researcher has also gone further, stating that the continued financial difficulties can lead to various tenants/households downscaling their lifestyles by moving to more affordable units that fit their income.
This is expected to affect the recovery of the rental market.
The trajectory in repo rate, which is fueling interest rate rises across economies and domestically, has been dampening households’ appetite as money becomes expensive.
According to FNB researchers, this can be a positive factor as higher-income earners may decide to keep renting instead of acquiring their own properties.
Rental prices have been observed to fall in many jurisdictions across the country, apart from the coastal town of Swakopmund, which recorded a surge in demand for lifestyle rental properties.
The report has also indicated that residential rental listing, which is an indicator of the volume of units entering the market, shows that for the quarter, rental list declined by 70 per cent quarter on quarter.
With only 2,181 rental units listed in the second quarter, compared to last year, there is, however, some improvement.
The quarterly decline was mainly observed in two-bedroom property listings. This trend is also observed in three-bedroom properties.
The report indicated that the low listing could also be attributed to the high retention of tenants.
However, the high retention of tenants has been observed in towns that are not well known for their rental markets, such as Oshikuku, Oshikango, Karibibi, Usakos, Katima Mulilo, Utapi and Otjiwarongo.
Rewards for property investors represented by rental yield have also shown a decline. By the end of June 2022, it has declined by 0.1 per cent every quarter and 0.2 per cent annually.
The researcher has indicated that, at 6.7 per cent, rental yields are still competitive compared to regional peers. However, the cost of amenities and inflation is accelerating faster, which corrodes the investors’ profit.
Furthermore, the Rental Index report assessment has also revealed that it is a costly act to maintain a home now compared to a year ago due to high building materials, steel, and other household amenities.
While rising interest rates are elevating mortgage instalment costs, a landlord cannot pass on this cost to tenants in the current economic environment. Email: erastus@thevillager.com.na
