Windhoek’s Artificial Property Prices

T
he Windhoek Municipality, as a local authority, is run on a cost recovery basis.
In terms of this principle, the City (of Windhoek) makes no profit from the provision of essential services such as water, electricity, sewage and refuse removal. This raises another, more important point.

The sale of land is the principal and only means of income generation for the Windhoek Municipality.
In 2011 the City raked in no less than N$220 million from selling land in and around Windhoek. At last year’s property auction, 234 erven (plots) were sold for a combined total of N$208 million. This resulted in a N$141 million – or 208 per cent – profit.
The Windhoek Municipality made a further N$4,2 million from the sale of 21 erven through its Offer-to-Purchase system, and a whopping N$75 million from the sale of eight ‘residential block zoned’ (townhouse) erven.
On average, erven sold at the 2011 auction were 732 square metres (sqm) in size, and the average price paid was just under N$890 000 per piece of land – a per sqm price of N$1 224.
Following that auction, First National Bank (FNB) Namibia reported that a price of N$400 per sqm cannot be afforded by 60 per cent of Windhoek households, who will never be able to afford land in Windhoek, let alone housing. FNB Namibia also reported that the average per sqm price of N$1 224 represents a 96 per cent increase from the 2010 land auction where the average per sqm price was N$628.
in 2011, the land auction and the Offer-to-Purchase system accounted for the sale of 255 pieces of land in Windhoek. No wonder then that FNB Namibia accused the City of ‘market manipulation’, as the bank estimates that housing demand in Windhoek (in 2011) averaged 200 houses a month.
Given the cost of land in Windhoek, which will have undoubtedly risen since last year, let’s return to the sale of land as the principal and only means of income generation for the City. Think in terms of the economic principle of supply and demand, throw in the fact that highly placed individuals at the City have, over the past 18 months, said (on more than one occasion) that the Municipality faces a severe financial crunch. Add to that the fact that for its 2011/2012 financial year the City set aside N$285 million for salaries and wages and the City Council approved N$3,7 million for allowances for themselves, which amounts to a monthly sum of N$308 000 per councillor.
Fingers have been pointed at the City’s land delivery system more than once. Many (including FNB Namibia) are calling for a rethink of the model, as serviced land is simply made available too slowly. Think of the 255 pieces of land made available in 2011, the average monthly housing demand of 200 houses, the fact that last year the National Housing Enterprise (NHE) said it had a housing waiting list of approximately 6 000 and you might begin to understand how a slow and ineffective land delivery model creates the ‘right’ kind of supply and demand situation.
According to FNB Namibia, by September 2011, there were an estimated 50 000 serviceable erven in Windhoek, and the bank believes that auctioning 234 erven in one calendar year is so far below demand that it borders on market manipulation.
The City blames a lack of financial resources for its inability to service land, but people in the know have said that the City’s five-year financing plan (by which successful bidders at auction must repay the cost of the land over 60 months) is the problem. Financing the sale of land through commercial banks would result in a capital recovery time of three months for the City – instead of 60 months – meaning that more land can be serviced on a more regular basis. But one has to take into account the economic principle of supply and demand and the resulting downward pressure which more land in the property market will have on overall property prices in Windhoek.
This makes for a convincing argument that the City is directly to blame for the high property prices in Windhoek. If the pace of land delivery is kept at snail’s pace, demand is kept high. If supply is manipulated, the price of land and property in Windhoek is artificially inflated thus ensuring maximum revenue on land sales.
But apart from the fact that you and I cannot afford property in Windhoek, a deeper issue lurks. Last year, a number of commercial banks in Namibia expressed concern over the affordability of land sold on auction. Take the 2011 land auction, where land sold at an average price of N$890 000 per erf. If bought on the City’s five-year financing option, the buyer would have to repay that amount over 60 months at a monthly instalment of N$14 833.
Now when you buy from the City through the City you’ll find a clause stipulating a two-year timeframe to start development on the land, something which adds strain to the cash flow of successful bidders. Here, the crux of the matter is simply that those who cannot afford these monthly repayments lose the land as it is repossessed by the City, and hey presto, it’s put back on auction, and nobody has benefited.
At the end of the day, residents cannot afford property in Windhoek because property prices are artificially inflated. Lets hold our councilors accountable
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This article is an adapted version of a blog post on http://intelliconn.wordpress.com

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