Housing Index Report for Quarter 2 & 3, 2007 High Interest Rates Dampen Housing Market This report covers the second and third quarter of 2007. that the average values of houses in Eros fell by nearly 25% The index tracks changes in average housing prices on a during the previous quarter followed by Brakwater at 21%. quarterly basis. The index is calculated from a weighted With the current growth of 24.6% it has recovered some lost average of the monthly FNB valuation data. The objective ground. In fact, most of the upper price-segment suburbs of the index is to provide an overview of what is currently saw subdued if not negative growth in their valuation indices happening in the housing market. It has become an during the second quarter of 2007 (see for e.g. Pionierspark indispensable reference material. The report presents an (-4.7%); Kleine Kuppe (-5.2%); Klein Windhoek/Ludwigsdorf overview of the performance of the quarterly index followed (2.2%). The same trend more or less persisted for the third by a discussion of the factors that may drive its changes. quarter of 2007. During the third quarter of 2007, Academia fell by 15.2%, followed by Pionierspark with a decline in the index of 5.9%. See Table 1 on the next page for further Housing Index Signals Slow Down details. The observed deceleration in both absolute valuations Figure 1 shows a mild recovery in the index for the third quarter and prices signals a difficult trading environment as a result of 2007 after remaining virtually unchanged at just over 124 of the high interest rates. Similar trends are visible in the between quarters 1 and 2. During the third quarter of 2007, South African housing market as well. the weighted average valuation price for houses in Windhoek Overall it seems that most of the movement in the housing grew by 2.12%, after stalling in the previous quarter. market takes place in the below N$500,000 segment. Areas In terms of the area or suburb decomposition most of the like Katutura, Cimbembasia, Goreangab and Rocky Crest growth in the index for the third quarter derives from a 24.6% just to name a few, have maintained positive growth over growth in the average valuation price of Eros. It is interesting a longer period relative to more expensive suburbs. Figure 1: Windhoek Overall Quarterly Index - Q2 and Q3 of 2007 (Base: Q1 of 2006) 130.00 126.85 124.25 124.21 125.00 118.72 120.00 117.61 115.00 110.00 105.00 101.47 100.00 100.00 95.00 90 Q1 of 2006 Q2 of 2006 Q3 of 2006 Q4 of 2006 Q1 of 2007 Q2 of 2007 Q3 of 2007 Source: FNB Namibia Valuation Data FNB Housing Index Report for Quarter 2 & 3, 2007 PAGE 1 This confirms that the demand for houses is much greater for housing finance. Expectations are that mortgage advances in these areas relative to the high end suburbs where dearer would decline even further as further interest rate hikes take properties show signs of price depression. Research done effect. Going forward, the expected increase in core interest in South Africa has shown that high income households are rates around December to fight off ever increasing inflation more sensitive to changes in interest rates, whereas lower does not auger well for the housing market. The affordability income households tend to be relatively more sensitive to of housing will diminish further with rising debt servicing cost changes in employment and remuneration. as consumers are already financially stretched. Private Sector Credit Extension Slows Construction Activity Bank of Namibia data show that there has been a marked On the back of this index we present the number and value deceleration in private sector credit extension since June 06 of building plans approved, and the same for building plans as interest rates started to peak. The high interest rates have completed. By the end of March 07 there were 236 plans also started affecting mortgage advances. By August 07, approved at a value of N$80.3 million. By September 07 the y-o-y growth in private sector credit extension slowed down number of building plans approved declined to 224, although to 12% after recording yearly growth rates of nearly 20% the value is much higher at N$94 million. Additions and around the same time in 2006. Mortgage advances also alterations to existing structures continue to account for over decelerated to a y-o-y growth of 17% in August 07 after 90% of building plans approved for the City of Windhoek. recording y-o-y growth rates of 20% in May 07 (see Compared to July and August 07 there is a marked slow Figures 2 and 3). Mortgage advances typically account for down in the number of building plans completed. Only about 40% of total private sector credit. 137 plans were completed by September 07 compared to A closer comparison of the interest rate cycle and the 318 in July. The observed deceleration in building plans both y-o-y growth in mortgage advances shows a strong inverse approved and completed seems to follow from the observed relationship between rising interest rates and the demand decline in private sector credit extension as discussed earlier. Table 1: Quarterly Changes in House Valuations Indices by Suburb Percentage Percentage Percentage Percentage Suburbs change from change from change from change from Indexes Q2-07 to Q3-07 Q1-07 to Q2-07 Q4-06 to Q1-07 Q3-06 to Q4-06 Academia -15.2% 17.9% 5.5% 6.1% Auasblick na 2.4% 0.2% 22.1% Brakwater na -21.0% -8.1% -34.0% Cimbembasia -3.0% 1.6% 0.1% 3.6% Dorado Park 4.1% 1.4% 0.5% 15.5% Eros 24.6% -24.7% 1.3% 10.8% Goreangab 3.9% 6.2% 13.9% 14.7% Hochland -2.4% -7.0% 0.9% 1.1% Katutura 6.2% 7.8% 3.2% 0.1% Khomasdal 3.1% 5.1% 8.8% 3.1% Klein Windhoek and Ludwigsdorf 0.7% 2.2% 2.3% 0.8% Kleine Kuppe 4.4% -5.2% 1.0% 0.8% Okuryangava 9.3% 19.2% 12.1% -2.9% Olympia 1.3% 5.3% 15.8% -1.0% Otjomuise 1.9% -6.1% 4.5% 22.8% Pionierspark -5.9% -4.7% 15.2% -1.6% Rocky Crest 3.0% 3.4% 5.3% 1.3% Wanaheda 7.1% -4.5% 8.1% -0.9% Windhoek Central * 1.2% 2.3% 14.7% 12.0% WINDHOEK 2.12% -0.03% 4.66% 0.94% Source: FNB Namibia Valuation Data * Windhoek Central includes Windhoek North & West, Suiderhof, Rhino Park and Ausspannplatz. The overall figure for Windhoek is based on the weighted averages of the various suburbs. FNB Housing Index Report for Quarter 2 & 3, 2007 PAGE 2 FNB Housing Index Source: BankofNamibia Source: BankofNamibia shown bytheobserveddeclineinpricemixofresidential It isclearthatthehousingmarketinadecliningphaseas Conclusion Figure 2: Private Sector Credit ExtensionandMortgageAdvances(y-o-ygrowth) 2:PrivateSectorCredit Figure Figure 3: Interest RatesandMortgage Advances (y-o-ygrowth) 3:Interest Figure -30% -20% -10% 10% 20% 30% 40% 50% 60% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 0% APR 03 APR 03 JUNE 03 JUNE 03 y-o-y growth residential mortgageadvances residential y-o-y growth y-o-y growth private sector credit extension privatesectorcredit y-o-y growth AUG 03 Reportfor Quarter2&3, 2007 AUG 03 OCT 03 OCT 03 DEC 03 DEC 03 FEB 04 FEB 04 APR 04 APR 04 JUNE 04 JUNE 04 AUG 04 AUG 04 OCT 04 OCT 04 DEC 04 DEC 04 FEB 05 APR 05 FEB 05 JUNE 05 APR 05 AUG 05 JUNE 05 OCT 05 AUG 05 rateenvironment. seems tobedrivenbythehighinterest mortgageadvances.Thisprocess deceleration inresidential thatwasevaluated,aswellbythemarked property DEC 05 OCT 05 y-o-y growth residential mortgageadvances residential y-o-y growth Interest Rate Interest FEB 06 DEC 05 APR 06 FEB 06 JUNE 06 APR 06 AUG 06 JUNE 06 OCT 06 AUG 06 DEC 06 OCT 06 FEB 07 DEC 06 APR 07 FEB 07 JUNE 07 APR 07 AUG 07 JUNE 07 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00% AUG 07 PAGE 3 Table 2: Windhoek Building Plans Approved WINDHOEK July August September BUILDING PLANS APPROVED Number N$ Number N$ Number N$ DV8 SAATCHI & SAATCHI SAATCHI DV8 Residential 20 17,892,460 28 18,657,980 14 10,198,424 Flats - - - - - - Institutions - - - - - - Additions and Alterations 222 30,700,857 214 34,891,427 206 36,657,939 Industrial Buildings - - - - - - Commercial Buildings 2 9,000,000 5 20,527,500 4 47,200,000 TOTAL 244 57,593,317 247 74,076,907 224 94,056,363 Source: National Planning Commission Table 3: Windhoek Building Plans Completed WINDHOEK JULY AUGUST SEPTEMBER BUILDING PLANS COMPLETED Number N$ Number N$ Number N$ Residential 61 42,711,415 38 13,494,947 26 26,264,869 Flats - - - - - - Institutions - - - - - - Additions and Alterations 250 46,464,544 158 15,138,596 110 11,738,037 Industrial Buildings 1 1,500,000 - - - - Commercial Buildings 6 48,925,000 - - 1 6,000,000 TOTAL 318 139,600,959 196 28,633,543 137 44,002,906 Source: National Planning Commission FNB Housing Index - Report for Quarter 2 and 3, 2007 Authored by: Daniel Motinga & Erwin Karipata Enquiries: Erwin Karipata, Tel: +264 61 299 2296, Fax: +264 61 225 994, E-mail: [email protected] 5th Floor, First City Centre, Levinson Arcade, Windhoek Methodology: The FNB House Price Index is based on a weighted average of residential valuations done by the FNB Valuations Division.