Rental index growth on monumental comeback
National weighted average rent stood at N$6 728
At the end of 2021, the 12-month average rental index growth posted a contraction of 0.7% compared to a contraction of 2.1% recorded a year earlier.
As the impact of Covid-19 continues to cool-off, combined with the re-opening of most economies, rental growth in Namibia is yet again back on its upward trajectory, recording smaller contractions over time. This points to a gradual easing of the tight market conditions that have characterised the rental market over the past year-and-a-half.
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 three-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% year-on-year, bringing the respective 12-month average rents to N$3 646 and N$9 689.
The only segment which appears to have lagged on 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% realised 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 the 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%), Rehoboth (19.7%), and Ongwediva (3.5%). At the opposite end are Tsumeb (-45.5%), Swakopmund (-28.1%), Ondangwa (-26.7%), Okahandja (-18.4%), Walvis Bay (-16.8%) and Windhoek (-4.2%), year-on-year. 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.
Rental breakdown
Residential rental listings declined significantly by 32.7% year-on-year in 2021 to about 10, 782 units. This was the lowest level observed since 2018 and points to a rapid absorption rate as tenants take advantage of reduced rents. However, the two-bedroom units accounted for a higher proportion of rental listings of 42.8% in 2021, up from 37.2% in 2020. Conversely, the proportionate share of rental listing for the more than 3 bedrooms segment dropped by 2.2 percentage points to 4.3% in 2021. This is indicative of shrinking rental opportunities for this market due to lower inventory and a general shift in preference towards bigger rental space.
Meanwhile, fundamentals within the single-family market appear to have stabilised somewhat in the past two years with the share of rental listings hovering around 34.4% in 2021, slightly lower than the 36.5% and 36.7% recorded in 2020 and 2019, respectively.
On a 12-month rolling basis, overall deposits charged by landlords contracted by 21.8% at the end of 2021 compared to a contraction 27.0% a year ago. The more-than three bedrooms segment recorded the deepest 12-month average contraction of 26.3% in deposit charged, followed by the two-bedroom, one-bedroom and three-bedroom segments, with -24.0%, -18.6% and -7.4%, respectively. As a result of these developments, the deposit-to-rent ratio continue to print lower readings of 3.6% at the end of 2021. This represents a new record low and highlights a systemic affordability issue across the Namibian economy.
Since mid-2020, rental yields have seen a consistent decline. This occurred in tandem with the outbreak of the Covid-19 pandemic, which resulted in business closures and widespread job losses. However, as vaccines become widely available, most businesses have returned to business-as-usual, creating a renewed momentum around increased households’ mobility and demand for residential space. Consequently, rental yields moderated upwards to 6.8% at the end of 2021 from 6.7% recorded at the end of the prior quarter. The rebound in rental yields appears to paint a bullish outlook for the rental market, which is also consistent with the positive economic outlook as projected by various local research houses.
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 stabilise. 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.
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 three-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% year-on-year, bringing the respective 12-month average rents to N$3 646 and N$9 689.
The only segment which appears to have lagged on 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% realised 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 the 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%), Rehoboth (19.7%), and Ongwediva (3.5%). At the opposite end are Tsumeb (-45.5%), Swakopmund (-28.1%), Ondangwa (-26.7%), Okahandja (-18.4%), Walvis Bay (-16.8%) and Windhoek (-4.2%), year-on-year. 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.
Rental breakdown
Residential rental listings declined significantly by 32.7% year-on-year in 2021 to about 10, 782 units. This was the lowest level observed since 2018 and points to a rapid absorption rate as tenants take advantage of reduced rents. However, the two-bedroom units accounted for a higher proportion of rental listings of 42.8% in 2021, up from 37.2% in 2020. Conversely, the proportionate share of rental listing for the more than 3 bedrooms segment dropped by 2.2 percentage points to 4.3% in 2021. This is indicative of shrinking rental opportunities for this market due to lower inventory and a general shift in preference towards bigger rental space.
Meanwhile, fundamentals within the single-family market appear to have stabilised somewhat in the past two years with the share of rental listings hovering around 34.4% in 2021, slightly lower than the 36.5% and 36.7% recorded in 2020 and 2019, respectively.
On a 12-month rolling basis, overall deposits charged by landlords contracted by 21.8% at the end of 2021 compared to a contraction 27.0% a year ago. The more-than three bedrooms segment recorded the deepest 12-month average contraction of 26.3% in deposit charged, followed by the two-bedroom, one-bedroom and three-bedroom segments, with -24.0%, -18.6% and -7.4%, respectively. As a result of these developments, the deposit-to-rent ratio continue to print lower readings of 3.6% at the end of 2021. This represents a new record low and highlights a systemic affordability issue across the Namibian economy.
Since mid-2020, rental yields have seen a consistent decline. This occurred in tandem with the outbreak of the Covid-19 pandemic, which resulted in business closures and widespread job losses. However, as vaccines become widely available, most businesses have returned to business-as-usual, creating a renewed momentum around increased households’ mobility and demand for residential space. Consequently, rental yields moderated upwards to 6.8% at the end of 2021 from 6.7% recorded at the end of the prior quarter. The rebound in rental yields appears to paint a bullish outlook for the rental market, which is also consistent with the positive economic outlook as projected by various local research houses.
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 stabilise. 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.
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