Weak economy boost tenants’ negotiating power

THE weak economy has added weight to tenants’ negotiating power, making them able to strike rent deals with low or no deposits at all.

This has led to FNB Namibia’s market research manager Frans Uusiku and his team maintaining an outlook that Namibia has and will continue to becoming a ‘renters market’, now with tenants calling the shots.

“The persistently declining ratio continues to highlight the bargaining power that potential tenants have in the rental market on the back of a weak economy. Henceforth, we continue to maintain our view that Namibia has moved to a renter’s market, allowing potential tenants to negotiate lower rent deposits or no deposits at all,” said the FNB team in their recent rental index report for December 2019.

In it, Uusiku said deposits charged by landlords contracted by 28% year-on-year at the end of December 2019 compared to a growth of 6,4% year-on-year recorded during the same period of 2018.

“This brought the deposit to rent ratio to a 10-year record low of 6,5%,” he said.

Uusiku said the drop in deposit to rent ratio was observed in all segments, with the largest being in the 2-bedroom segment and the lowest in the one-bedroom segment.

Other observations made by the FNB team is the 2-3-bedroom segment properties gaining traction.This, they say, is because houses are becoming unaffordable.

“The notable growth in rental activity for the 2-3-bedroom segments and the resultant price pressures has brought the national average rent price to N$6 992 as at December 2019, reflecting growth of 3,6% year on year. This is indicative of an increase in demand for these types of rental units as houses become unaffordable on the back of subdued real wage growth,” Uusiku said.

On the price to rent ratio – which is a ratio of home prices to annualised rent in a given location, a ratio of 13 was recorded for December 2019.

This ratio is used as a benchmark for estimating whether it is cheaper to rent or own a property and as a general rule, a price to rent ratio of 1 to 15 indicates that it is much better to buy than rent, 16 to 20 indicates that it is better to rent than buy, where else 21 or more indicates that it is much better to rent than buy.

“By interpretation, the price to rent ratio of 13 as at December 2019 implies that the Namibian housing market is still relatively stable. However, the risk of households opting to hold onto to renting than to owning a house is starting to emerge as houses are becoming unaffordable,” Uusiku said.

He said this could also imply that the housing market could improve further along with the expected improvement in economic conditions.

“We therefore expect rental prices growth to mark a positive territory in the first quarter of 2020 before it stabilises along its long-term sustainable growth path,” he said.

The national average rent price for December skipped up by 3,6% year on year to N$6 992 per month. The average monthly rent for a 1-bedroom unit and for a more than 3-bedrooms unit clocked at N$3 390 and N$15 034, respectively, while the 2-3-bedroom segments stood at an average price of between N$7 000 and N$10 251.

Email: lazarus@namibian.com.na

Twitter: @Lasarus_A