Rent growth retreats into negative territory

Following two consecutive months of growth, the 12-month average growth in the FNB rental index retreated into negative territory - posting a contraction of 1.7% at the end of June 2022. This unexpected setback was mainly driven by price contraction of 7.7% y/y within the two-bedroom segment, which reached a 12-month average level of N$6 102. This is the lowest level seen in 6 years and highlights the impact of a sudden economic shock on households, characterised by rising interest rates, inflation and fuel prices. Similarly, the one-bedroom and three-bedroom segments also disappointed on the downside albeit by a smaller degree, posting rental contractions of 0.3% and 1.8% y/y at the end of June 2022 to N$3 611 and N$N$9 446, respectively.

Conversely, the more than three bedrooms segment continues to sustain stability in the rental market on the back of improved tenant retention. In effect, this segment registered rental growth of 7.7% y/y, bringing the 12-months average rent to N$19 518 from N$18 129 recorded a year earlier. Consequently, the overall 12-months national weighted average rent came in at N$6,964 at the end of June 2022 from N$6,926 recorded over the same period of 2021. Although the rental market has recovered somewhat between the second half of 2021 and the first quarter of 2022, agents and landlords should continue to remain mindful of the negative effects of the current macroeconomic environment on tenants’ ability to pay their rent. The continued financial hurdles faced by consumers could force households to downscale their lifestyles by seeking out cheaper accommodation options, which would further derail a complete rental market recovery. On the flipside, rising interest rates and the subsequent reduced appetite to borrow may also mean that some higher-income tenants may decide to keep renting instead of buying their own properties, which will have the opposite effect.

It is becoming increasingly more expensive to maintain a home compared to a year ago due to higher cost of building materials such as steel and other essential household amenities. Rising interest rates are also lifting bond instalments, yet it is difficult for landlords to pass on sharp cost increases to tenants in the current difficult economic environment. Looking ahead, we expect nominal rentals to continue to rise slowly in the next year or so but at a rate lower than the consumer inflation rate.