Namibia's Road Runner Housing Market

Namibia’s ‘Roadrunner’ Housing Market?

 Those who are fans of cartoons will no doubt recall the  Roadruuner where usually Wiley Coyote would run off a cliff and keeps running until he finally realized there was nothing underneath and  gravity would rapidly take over . In Business it is now known as the Roadrunner effect, that is when someone or a market continues to behave as the foundations for the earlier behavior still exist. Housing bubbles are very much part of this phenomenon and the big question that is now asked is Windhoek specifically and in Namibia more generally about to experience a  Road Runner effect?

While average asking prices for housing have continued to rise  what has happened is that that the volume of turnover has started to decline quite drastically. But averages disguise huge variations throughout the economy. In Windhoek for example the FNB(First National Bank) housing price index has continued to show growth on average but there the volumes of sales that underpin the market are not there and  the volume index has been dropping sharply. This is one key part of the Road-runner effect. People are demanding higher prices but the sales are simply not occurring. But as can be seen below in 2009 when volumes of sales dipped sharply in Namibia prices continued to grow so a decline in average prices is possible but a cliff is not inevitable. 

            According to FNB, the median house price was N$1.3mn in June which is 10.5% higher than average Windhoek house prices in 2015. High income suburbs have begun to show signs of decline. In KleineKuppe prices have dropped by 1.0%, while Ausblick and Olympia prices have declined by 12.1% and 2.2% respectively. Unsurprisingly as the more expensive suburbs become out of reach to middle income Namibians there strong price growth in  low income areas such as Okuryangava, Khomasdal, Katutura and Rocky Crest.

Unfortunately the elements that supported the housing bubble  in Namibia that peaked in 2014 and saw Namibia with the world’s fastest growing prices is now  well and truly over. Several well known factors have combined together to create  a market which cannot sustain prices at the top end. The first is the decline in commodity prices, including oil which effected the local economy severely. But more importantly than any direct effect this has had on Namibia the decline in oil prices has removed the Angolan buyer who would come to Namibia, a buy or rent an expensive property with a suitcase of US dollars. With the collapse of oil prices Angolans no longer have the petro-dollars to prop up the market and government

The second factor that has caused the decline in sales is that the economy has not been growing anywhere near as rapidly as in the past and may be entering a technical recession with the last quarter registering  -1.2% economic growth. A technical recession (ie two quarters of GDP decline) is unlikely because the exports  from the new Hauseb mine are likely to register shortly which is expected to provide a 5% boost to GDP.

What is also likely to put a severe damper on rising housing prices is the  austerityprogramme that will be necessary if the government is to rectify its budget deficit of 8.3% of GDP.  Government, as the largest sector in the economy will cause the greatest impact on other sectors.

The signs of a decline in the housing market are already there in not just the decline in the volume of sales but also in the rental rates. According to FNB, the largest decline in volume of transactions emanates from the high-end market (house prices over N$2.6mn) where volume growth contracted by 46.0% at the end of May. Prices in this segment, however, haven’t declined as one would expect with the extended drop in demand. Although in June of this year high-end property price growth remain 22.4% higher compared to last year June. Properties are spending significantly more time on the market, giving buyers the opportunity to negotiate prices down, a trend which was not available a year ago, when most properties were selling above valuation and top ups were the order of the day.

Speaking to real estate agents there have been serious declines in rental rates for not only top end houses but the increasingly over-supplied two-bed room units where rentals have, according to prominent real estate agent Ms Nadia Steenkamp  have decreased by some 10% over the last year. Declining rental rates tend to get translated into declining house price eventually.  It is however usually in the middle to upper levels of the housing market where prices tend to be stable though no sector is immune to temporary over- supply.

But house prices deflation which is a serious phenomena because it leaves those who have acquired bonds on their homes when prices are high in positions of having a house where they have negative equity. This is still unlikely to happen here because the problem that underlies the market is temporary. There remains a  structural shortage of housing in Namibia that, according to the IMF, is only getting worse with time and until land is made available is the increase in prices despite the  possibility of a price cliff in several segments of the market.

 But what is perhaps most interesting is why average housing prices in Namibia have increased by 250% between 2007 and 2016 . Part of the explanation is of course inflation but the structural shortage of land for development has strengthened this trend. In Africa’s most sparsely populated country it seems a great shame that a sector which can be such as vital source of semi-skilled and skilled employment is stymied by the structural shortage of land.

What is needed is a rethink of land policy in the periurban areas. Where the private sector is strong enough the government should make the land available and allow the private sector to get on with the job  of construction that will provide much needed growth and employment for the country rather than having local councils directly involved in allocation of land for those other than the very poor.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.