Rental index growth on a monumental comeback

At the end of 2021, the 12-month average rental index growth posted a contraction of 0.7%. This represents a significant improvement when compared to a contraction of 2.1% recorded a year earlier. In dollar terms, the national weighted average rent came in at?N$6,728 at the end of 2021 from N$6,747 a year ago. The more than 3-bedrooms segment has consistently kept the rental growth momentum upbeat relative to other segments, with the 12-month average rent recorded at N$18 747 in December 2021. This reflects a staggering year-on-year rental growth of 9.7% and continues to reaffirm the growing relevance of the multi-family market as housing affordability issues linger. The emerging?recovery in overall rental growth is also evident within the one-bedroom and the three-bedroom segments, as the decline in rents continue to soften. In effect, rental growth in these segments contracted by a same magnitude of 0.4% y/y, bringing the respective 12-month average rents to N$3 646 and N$9 689.

The only segment which appears to have lagged the rental growth frontier is the two-bedroom segment which posted a 12-month average rent of N$6 424 over the same period. This reflects a year-on-year contraction of 6.7%,?compared to a contraction of 2.3% realized over the same period of 2020. The suppressed rent growth within the two-bedroom segment is unsurprising?given the inherent higher inventories and the resultant risk of tenants having greater bargaining power over landlords.

Indeed, the stability of the housing market continues to define a highpoint of the Namibian rental market. However, with the current housing supply falling short of the demand gap due to high cost of land servicing that is further aggravated by constrained government spending, there is considerable scope for investors to deliver the “rent to own” housing options across the regions at various price points. This is poised to move the needle in addressing the housing backlog. Looking at the regions, green shoots are emerging but remain limited to a few towns. The best performing towns in terms of rental growth are Rundu (70.1% y/y), Rehoboth (19.7% y/y), and Ongwediva (3.5% y/y). At the opposite end are Tsumeb (-45.5% y/y), Swakopmund (-28.1% y/y), Ondangwa (-26.7% y/y), (Okahandja -18.4% y/y), Walvis Bay (-16.8%) and Windhoek (-4.2% y/y). The lag could be attributed to the large concentration of financial sector workers that are more likely to continue working on a hybrid or fully remote schedule.

?After a year-and-half of consistent declines in the rental index growth, the rental market appears to be improving due to cooling negotiability, and tenants seeking out for larger apartments. We believe stock expansion within the multi-family rental market will be a big factor in the recovery process. The year ahead will be an important test for the Namibian rental market to see whether the same factors that have driven the recovery will continue to fuel the market, if new ones would emerge, or if the frenzy of activity will finally stabilize. The key possible headwinds ,however,?are likely to revolve around elevated inflation, interest rates and a new wave of COVID-19 cases. These are likely to affect rent affordability and subsequently the pace of recovery.