Property market remains muted
2024 might open doors
The domestic property market is expected to perk up on the back of moderating inflation, lower anticipated interest rates, fiscal policy measures such as housing subsidies and tax benefits, as well as the easing in loan-to-value ratios.
Namibia’s property market must be continuously monitored, bearing in mind that fluctuations in property prices, along with high borrowing costs, could impact the performance of the banking sector.
At the end of last year, mortgage advances accounted for the largest portion of banks' non-performing loans (NPLs), reaching 55.1%, a slight decrease from 55.6% the previous year, according to the Bank of Namibia’s (BoN) latest Financial Stability Report (FSR).
Mortgage loans continued to dominate the banking sector's total loans and advances last year.
Residential housing accounted for 68.2% of the households’ total credit, slightly down from 68.4% in 2022. Meanwhile, mortgage credit for the corporate subsector dropped to 30%, compared to 31.5% in 2022. Overall, mortgage advances made up 52.6% of the banking sector's total loans and advances, a decrease from 53.1% the previous year.
Credit developments
Last year, the annual growth in total credit extension for the mortgage market remained subdued, following slower growth in 2022.
Overall, total mortgage credit grew by 0.9%, down from 1.1% in the previous year. This lower growth was notably reflected in the corporate sector, where mortgage credit uptake contracted by 4.4% annually. In contrast, the household sector showed signs of improvement, with mortgage credit extension growing by 1% in 2023.
Notwithstanding this improvement, the level of mortgage credit remained muted compared to historical trends, the BoN said.
“Additionally, a high interest rate environment, sluggish job creation and conservative lending practices by the banks towards mortgage credit may have dampened consumer confidence and reduced appetite for property-related investments. Slow income growth may have also contributed to consumers having limited capacity to take on additional debt for mortgage expenditure, thus contributing to subdued credit expansion in the market,” the central bank added.
House price developments
The FNB House Price Index (HPI) saw a significant improvement during the review period, despite high interest rates and sluggish economic activity.
Last year, the HPI rose by 3.9%, marking a substantial turnaround from the 2.9% decline recorded in 2022.
This positive momentum in the housing market was largely driven by strong growth in the coastal, southern and northern regions, even as the central region experienced a decline in property transaction values.
The increase in the HPI aligns with the rising uptake of mortgage credit by households, even though overall mortgage credit growth remained slow during the review period, the BoN said.
Rental prices saw significant growth during the review period, despite a weak consumer environment. After experiencing contractions in the first quarter of 2023, the FNB Rental Price Index surged by 7.2% by the end of December 2023, compared to a 2.1% decline in the same period of 2022.
This growth was primarily driven by increased demand for three-bedroom, two-bedroom, and one-bedroom rentals, while demand for rentals in the 3 bedroom category declined during the period.
“Overall, the observed growth in rental prices is a positive development from the homeowner’s perspective, given how reliant homeowners are on this income stream to continue servicing their mortgage debt. This is particularly important during periods of sluggish wage growth and limited employment opportunities in Namibia,” according to the BoN.
Property sales
The volume of sales in the housing market remained low last year, but is expected to improve this year, the BoN said.
The housing market experienced a significant downturn last year, with the volume of sales plummeting by 24.5% in September, compared to a 6% growth in the same month of 2022.
The continuous negative growth in the volume of property sales can be attributed to several factors influencing lending behaviour, the central bank said.
“Notably, the prevailing high-interest rate environment amplified borrowing costs and deterred both businesses and households from taking on additional debt for property investment, thereby constraining overall credit expansion in the property market.”
Despite the contractions noted, the volume of sales is anticipated to improve in 2024 on the back of enhanced financial conditions driven by expansionary fiscal policy measures, the BoN said.
“This enhancement includes the increase in civil servant salaries, the new tax regime, and the housing subsidy adjustments, which are all substantial in boosting disposable income for a wide range of economic agents and promoting land and property acquisition.”
Supply side developments
At the close of 2023, there was a notable rise in the approval and completion of building plans compared to the same period in 2022. Despite a contraction in late 2022 and early 2023, both approved and completed building plans demonstrated consecutive increases by the end of last year.
“Notably, the number of building plans completed has been trending marginally downward since 2021, mainly due to the elevated inflation and interest rate environment. These two factors make financing more expensive, especially regarding the cost of materials, which in turn reduces construction activity,” the BoN said.
The central bank added: “Looking ahead, the developments on building plans approved and completed are expected to improve further on the back of a moderate inflation forecast. This suggests that the rate at which the cost of materials and labour grows is likely to decelerate, thus creating an environment conducive to stimulating construction activity.”
Loan-to-value ratio
The BoN first introduced the loan-to-value (LTV) regulation in 2016, in response to the rapid growth in house prices and to contain the risk of credit concentration of the commercial banks’ loan books to mortgage loans. It became effective in March 2017.
The LTV ratio regulation was revised last year and became effective in October, aligning with the BoN’s Macroprudential Oversight Committee’s (MOC) objectives of promoting a balanced and sustainable property market while safeguarding financial stability.
Unlike previous regulations, which mandated deposits for second and subsequent properties, the new policy eliminated down payments for first and second residential properties. However, prospective buyers seeking to acquire third and subsequent properties are now required to make a 10% deposit when obtaining a home loan.
“By strategically easing lending restrictions in targeted segments of the market, the revision of the LTV ratio as a macroprudential policy intervention was aimed at stimulating demand for property by reducing upfront costs for buyers,” the BoN said.
“This was not only particularly beneficial for investors or individuals seeking to expand their property portfolios, but it also aimed at stimulating economic activity, particularly in the construction sector. The intervention was also geared towards fostering a more resilient and dynamic property market and ultimately supported overall financial sector stability,” the central bank added.
While the LTV ratio regulation reinforces the existing set of credit risk mitigation tools, it is not intended to address all aspects of credit risk associated with borrowers or to replace commercial banks’ existing internal credit assessment policies and procedures, the BoN said.
“In this regard, and in the context of enhancing the macroprudential policy toolkit to mitigate various risks in the banking sector, the BoN is considering implementing a countercyclical capital buffer. This is in alignment with ongoing efforts by the BoN to enhance its risk monitoring framework to ensure financial system stability,” it said.
At the end of last year, mortgage advances accounted for the largest portion of banks' non-performing loans (NPLs), reaching 55.1%, a slight decrease from 55.6% the previous year, according to the Bank of Namibia’s (BoN) latest Financial Stability Report (FSR).
Mortgage loans continued to dominate the banking sector's total loans and advances last year.
Residential housing accounted for 68.2% of the households’ total credit, slightly down from 68.4% in 2022. Meanwhile, mortgage credit for the corporate subsector dropped to 30%, compared to 31.5% in 2022. Overall, mortgage advances made up 52.6% of the banking sector's total loans and advances, a decrease from 53.1% the previous year.
Credit developments
Last year, the annual growth in total credit extension for the mortgage market remained subdued, following slower growth in 2022.
Overall, total mortgage credit grew by 0.9%, down from 1.1% in the previous year. This lower growth was notably reflected in the corporate sector, where mortgage credit uptake contracted by 4.4% annually. In contrast, the household sector showed signs of improvement, with mortgage credit extension growing by 1% in 2023.
Notwithstanding this improvement, the level of mortgage credit remained muted compared to historical trends, the BoN said.
“Additionally, a high interest rate environment, sluggish job creation and conservative lending practices by the banks towards mortgage credit may have dampened consumer confidence and reduced appetite for property-related investments. Slow income growth may have also contributed to consumers having limited capacity to take on additional debt for mortgage expenditure, thus contributing to subdued credit expansion in the market,” the central bank added.
House price developments
The FNB House Price Index (HPI) saw a significant improvement during the review period, despite high interest rates and sluggish economic activity.
Last year, the HPI rose by 3.9%, marking a substantial turnaround from the 2.9% decline recorded in 2022.
This positive momentum in the housing market was largely driven by strong growth in the coastal, southern and northern regions, even as the central region experienced a decline in property transaction values.
The increase in the HPI aligns with the rising uptake of mortgage credit by households, even though overall mortgage credit growth remained slow during the review period, the BoN said.
Rental prices saw significant growth during the review period, despite a weak consumer environment. After experiencing contractions in the first quarter of 2023, the FNB Rental Price Index surged by 7.2% by the end of December 2023, compared to a 2.1% decline in the same period of 2022.
This growth was primarily driven by increased demand for three-bedroom, two-bedroom, and one-bedroom rentals, while demand for rentals in the 3 bedroom category declined during the period.
“Overall, the observed growth in rental prices is a positive development from the homeowner’s perspective, given how reliant homeowners are on this income stream to continue servicing their mortgage debt. This is particularly important during periods of sluggish wage growth and limited employment opportunities in Namibia,” according to the BoN.
Property sales
The volume of sales in the housing market remained low last year, but is expected to improve this year, the BoN said.
The housing market experienced a significant downturn last year, with the volume of sales plummeting by 24.5% in September, compared to a 6% growth in the same month of 2022.
The continuous negative growth in the volume of property sales can be attributed to several factors influencing lending behaviour, the central bank said.
“Notably, the prevailing high-interest rate environment amplified borrowing costs and deterred both businesses and households from taking on additional debt for property investment, thereby constraining overall credit expansion in the property market.”
Despite the contractions noted, the volume of sales is anticipated to improve in 2024 on the back of enhanced financial conditions driven by expansionary fiscal policy measures, the BoN said.
“This enhancement includes the increase in civil servant salaries, the new tax regime, and the housing subsidy adjustments, which are all substantial in boosting disposable income for a wide range of economic agents and promoting land and property acquisition.”
Supply side developments
At the close of 2023, there was a notable rise in the approval and completion of building plans compared to the same period in 2022. Despite a contraction in late 2022 and early 2023, both approved and completed building plans demonstrated consecutive increases by the end of last year.
“Notably, the number of building plans completed has been trending marginally downward since 2021, mainly due to the elevated inflation and interest rate environment. These two factors make financing more expensive, especially regarding the cost of materials, which in turn reduces construction activity,” the BoN said.
The central bank added: “Looking ahead, the developments on building plans approved and completed are expected to improve further on the back of a moderate inflation forecast. This suggests that the rate at which the cost of materials and labour grows is likely to decelerate, thus creating an environment conducive to stimulating construction activity.”
Loan-to-value ratio
The BoN first introduced the loan-to-value (LTV) regulation in 2016, in response to the rapid growth in house prices and to contain the risk of credit concentration of the commercial banks’ loan books to mortgage loans. It became effective in March 2017.
The LTV ratio regulation was revised last year and became effective in October, aligning with the BoN’s Macroprudential Oversight Committee’s (MOC) objectives of promoting a balanced and sustainable property market while safeguarding financial stability.
Unlike previous regulations, which mandated deposits for second and subsequent properties, the new policy eliminated down payments for first and second residential properties. However, prospective buyers seeking to acquire third and subsequent properties are now required to make a 10% deposit when obtaining a home loan.
“By strategically easing lending restrictions in targeted segments of the market, the revision of the LTV ratio as a macroprudential policy intervention was aimed at stimulating demand for property by reducing upfront costs for buyers,” the BoN said.
“This was not only particularly beneficial for investors or individuals seeking to expand their property portfolios, but it also aimed at stimulating economic activity, particularly in the construction sector. The intervention was also geared towards fostering a more resilient and dynamic property market and ultimately supported overall financial sector stability,” the central bank added.
While the LTV ratio regulation reinforces the existing set of credit risk mitigation tools, it is not intended to address all aspects of credit risk associated with borrowers or to replace commercial banks’ existing internal credit assessment policies and procedures, the BoN said.
“In this regard, and in the context of enhancing the macroprudential policy toolkit to mitigate various risks in the banking sector, the BoN is considering implementing a countercyclical capital buffer. This is in alignment with ongoing efforts by the BoN to enhance its risk monitoring framework to ensure financial system stability,” it said.
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