Landlords finally on their knees

Landlords finally on their kneesTenants have more bargaining power The FNB Residential Rental Index recorded a negative growth of -2.1% at the end of December 2020, from -0.8% recorded in December 2019. Landlords are seemingly left with little choice but to curb their expectations when setting their asking price. Frans Uusiku, Market Research Manager: FNB PHILLEPUS UUSIKU

Due to oversupply of rental properties and more bargaining power possessed by tenants, landlords are forced to settle for less in rental payments for their properties.

The national weighted average rent stood at N$6 747 at the end of December 2020 from N$6 991 in December 2019, a decrease of N$244 or 3.49%.

According to Frans Uusiku, Market Research Manager at FNB, the one-bedroom unit is the only segment that spurred growth in rent prices recording a growth of 4.9% year-on-year to N$3 670 compared to negative growth of from -6.5% recorded a year ago.

On the other hand, affordability within the two-bedroom, three-bedroom and more-than-three- bedrooms units, continues to be on an uphill path, with annual rent prices recording contractions of -2.3%, -5.0% and -3.4% year-year to N$6 882, N$9 728 and N$17 121, respectively, he pointed out.

Walvis Bay continues to bear the brunt of rental contractions, recording a negative growth of -42.2% year-on-year followed by Oshakati, Ondangwa, Rundu, Swakopmund, Okahandja and Windhoek recording -30.9%, -26.8%, -20.2%, -16.7%, -5.8% and -2.1%, respectively.

Conversely, Tsumeb recorded the highest growth in rent prices of 35.8% year-on-year followed by Ongwediva with 15.2% year-on-year over the review period.

Key drivers

Uusiku is of the view that the fundamentals prevailing in rental market are driven by the deteriorating demand for higher-priced properties. This implies that landlords are seemingly left with little choice but to curb their expectations when setting their asking price.

Secondly, many short-term and leisure rental properties moved onto the long-term rental market in 2020, after a sharp decline in tourism activity potentially due to Covid-19 induced travel restrictions.

“Lastly, we are also starting to see a growing interest amongst tenants choosing to take advantage of lower interest rates to buy houses, whilst some are opting to move in with families, mainly due to job losses or reduced income,” he said.

This exit of tenants from the rental market means an additional oversupply of rental properties to the already overstocked pool, thereby exerting further downward pressure on the rental price.

Rental breakdown

Overall, rental advertisement volumes contracted by 43% quarter-on-quarter and by 29% year-on-year to 2878 units in the fourth quarter of 2020.

Of interest to note is the persistent increase in the relative share of advertisement volumes for the two-bedroom segment to 45% in the fourth quarter of 2020 from 38% in the prior quarter and 34% in the corresponding quarter of 2019. This trend mirrors the notion that more and more tenants in the middle age group appear to be exiting the rental market due to preference to acquire own property on the one end and due to affordability issues on the other end.

“This explains the high tenancy turnover and a relative high frequency of rental openings in the two-bedroom segment. As a result, rent prices across the multi-bedroom segments continues to trend in the negative growth territory,” he said.