High interest rates shrink housing market

THE affordability to housing will weaken further as consumers are already financially stretched, according to the First National Bank of Namibia.

In its latest Housing Index, the expected increase in interest rates tomorrow does not auger well for the housing market. FNB highlighted that there is a marked slow down in the number of building plans completed this year, with only 137 plans in September compared to 318 in July.By the end of March, 236 plans were approved at a value of N$80,3 million while during September, the number declined to 224, although the value was much higher at N$94 million.Additions and alterations to existing structures continue to account for over 90 per cent of building plans approved for Windhoek.During the third quarter of 2007, the average valuation price for houses in Windhoek grew by 2,12 per cent after stalling in the previous quarter.”It is clear that the housing market is in a declining phase as shown by the observed decline in the price mix of residential property that was evaluated, as well as by the marked deceleration in residential mortgage advances.This process seems to be driven by the high interest rate environment,” said FNB’s Manager for Market Intelligence and Research, Daniel Motinga.Expectations are that mortgage advances would decline even further as interest rate hikes take effect.Overall, it seems that most of the movement in the housing market takes place below N$500 000 segment.Areas like Katutura, Cimbembasia, Goreangab and Rocky Crest maintained positive growth over a longer period compared to more expensive suburbs.Motinga said this confirms that the demand for houses is much greater in these areas relative to the high-end suburbs where dearer properties showed signs of price depression.It is interesting to note, he explained, that the average value of houses in Eros fell by nearly 25 per cent during the previous quarter followed by Brakwater at 21 per cent.In fact, most of the upper price-segment suburbs saw subdued if not negative growth in their valuation indices during the second quarter of 2007 (Pionierspark -4,7 per cent; Kleine Kuppe -5,2 per cent; Klein Windhoek/Ludwigsdorf 2,2 per cent).The same trend persisted for the third quarter of 2007.Academia fell by 15,2 per cent followed by Pionierspark with a decline in the index of 5,9 per cent.The observed deceleration in both absolute valuations and prices signals a difficult trading environment as a result of the high interest rates.Similar trends are visible in the South African housing market as well, according to him.”This confirms that the demand for houses is much greater in these areas relative to the high end suburbs where dearer properties show signs of price depression.Research done in South Africa has shown that high-income households are more sensitive to changes in interest rates, whereas lower income households tend to be relatively more sensitive to changes in employment and remuneration,” Motinga said.Bank of Namibia’s data showed that there has been a marked deceleration in private sector credit extension since June 2006 as interest rates started to peak.NampaFNB highlighted that there is a marked slow down in the number of building plans completed this year, with only 137 plans in September compared to 318 in July.By the end of March, 236 plans were approved at a value of N$80,3 million while during September, the number declined to 224, although the value was much higher at N$94 million.Additions and alterations to existing structures continue to account for over 90 per cent of building plans approved for Windhoek.During the third quarter of 2007, the average valuation price for houses in Windhoek grew by 2,12 per cent after stalling in the previous quarter.”It is clear that the housing market is in a declining phase as shown by the observed decline in the price mix of residential property that was evaluated, as well as by the marked deceleration in residential mortgage advances.This process seems to be driven by the high interest rate environment,” said FNB’s Manager for Market Intelligence and Research, Daniel Motinga.Expectations are that mortgage advances would decline even further as interest rate hikes take effect.Overall, it seems that most of the movement in the housing market takes place below N$500 000 segment.Areas like Katutura, Cimbembasia, Goreangab and Rocky Crest maintained positive growth over a longer period compared to more expensive suburbs.Motinga said this confirms that the demand for houses is much greater in these areas relative to the high-end suburbs where dearer properties showed signs of price depression.It is interesting to note, he explained, that the average value of houses in Eros fell by nearly 25 per cent during the previous quarter followed by Brakwater at 21 per cent.In fact, most of the upper price-segment suburbs saw subdued if not negative growth in their valuation indices during the second quarter of 2007 (Pionierspark -4,7 per cent; Kleine Kuppe -5,2 per cent; Klein Windhoek/Ludwigsdorf 2,2 per cent).The same trend persisted for the third quarter of 2007.Academia fell by 15,2 per cent followed by Pionierspark with a decline in the index of 5,9 per cent.The observed deceleration in both absolute valuations and prices signals a difficult trading environment as a result of the high interest rates.Similar trends are visible in the South African housing market as well, according to him.”This confirms that the demand for houses is much greater in these areas relative to the high end suburbs where dearer properties show signs of price depression.Research done in South Africa has shown that high-income households are more sensitive to changes in interest rates, whereas lower income households tend to be relatively more sensitive to changes in employment and remuneration,” Motinga said.Bank of Namibia’s data showed that there has been a marked deceleration in private sector credit extension since June 2006 as interest rates started to peak.Nampa