Local economist, Dr Omu Kakujaha-Matundu said due to the ongoing COVID-19 pandemic, the decrease and increase of rental prices are dictated by the economic climate.
In an interview with Nampa, Kakujaha-Matundu said an economic downturn will lead to depressed rental prices, and sometimes with devastating effects on the real estate business.
“Real estate owners owe financial institutions money, which they should pay whether they make good money or not. Should their income become too depressed, they could be foreclosed. If the trend such as foreclosures become widespread, it could lead to the bursting of the housing bubble. That could easily compromise financial stability, with dire consequences for the whole economy.
Individual owners experience reduced income and a dip in their living standards and could lose their properties or lay off employees to cut costs to remain afloat,” expanded Kakujaha-Matundu.
According to the recently issued FNB rental price index report for the first quarter of 2021, the yields on residential investment property have declined considerably as rental growth fails to keep up with rising housing prices, especially in the medium to low-cost housing market.
“At the end of March 2021, the return on an investment property was measured at 7.1 per cent, reflecting a 0.8 percentage point decline from the preceding period. Although we still view the current rental yields as indicative of a stable residential property market, the attractiveness of the residential property as an asset class would continue to depend on how soon the economy would return on its sustainable growth path,” it reads.
Furthermore, overall deposits charged by landlords contracted by 23.0 per cent year-on-year (y/y) at the end of March 2021, compared to a contraction of 32.1 per cent y/y recorded during the first quarter of 2020.
“The relatively mild contraction in rental deposit on the (y/y) basis highlights the low base effect from the first quarter of 2020 when the economy went into the first phase of COVID-19 lockdown,” the report adds.
Source: Namibia Press Agency (NAMPA)