Impaired mortgage loans to total mortgage declined from 6.9%
Average sales prices for residential properties experienced a 5% in. 2023
Volume of residential property transactions augmented by approximately 6%
Recent observations disclosed by a recently released report on Botswana’s residential property market indicate a general upswing in rental rates across the country, reflecting a broader trend in the real estate market.
FNB Botswana Residential Property Report which reviews 2023 performance and forecasts for 2024 concluded that there are various factors contributing to this phenomenon, including increased demand for rental properties, changing economic conditions, and evolving housing preferences. As rental rates are often indicative of the overall health of the property market, FNB Botswana found that this trend raises pertinent questions about the underlying dynamics.
Notably for FNB Botswana, Gaborone stands out with a significant surge in rental rates, particularly in the 3 and 4-bedroom segments. The segments witnessed heightened demand, which FNB Botswana says is possibly driven by families seeking spacious and accommodating living arrangements during times of transition.
Source: FNB Botswana
This specific trend warranted a closer examination to understand the unique factors influencing the rental landscape in the capital city.
Link to Property Auctions
Upon closer analysis, FNB Botswana found that there is a discernible correlation between the increase in rental rates, especially in larger housing configurations, and the number of properties facing default and subsequent auction. It appears that individuals, facing the impending auction of their mortgaged properties, are opting to secure alternative accommodation through rentals, FNB Botswana concluded, explaining that this strategic move aligns with a broader narrative of financial recovery, as these individuals seek stability and flexibility in the face of property-related uncertainties.
FNB Botswana said this shift in the rental market dynamics underscores the resilience of the rental sector as a viable option for individuals navigating financial challenges related to property ownership.
COVID induced distress
In early 2020, Steven Bogatsu, the Chief Executive Officer (CEO) of FNB Botswana disclosed that the number of houses the bank had repossessed grew from 180 to 400 over 12 months. In the following year, property experts observed evidence of an affordability crisis citing an over-supply of stock, as more and more people looked to sell their properties as their financial rescue.
Auctions are a market dilemma. Experts say market perception generally is that a property under auction should sell at a near throw-away price. The reality is that a property does not default, it’s the owner who does. Banks were sitting in stock repossessions which would have overwhelmed the market should they have released the stock for auctions.
Analysts found that the COVID-19 pandemic prompted a lot of homeowners to sell their properties under the asking price. Due to the uncertain economic environment, there was also a rise in the number of homeowners selling high-end properties due to the pandemic fuelled pressure on their incomes leading to a decline in prices in Botswana’s high-income residential property sector. Statistics by the Bank of Botswana (BoB) at the time showed that the average price of residential properties sold in the second quarter of 2022 decreased by 3% to P836,062, compared to the previous quarter. This reflected a decrease in the number of high-valued properties traded in the quarter under review.
Property experts explain that valuations fall when trade levels fall hence there was an expectation that this will happen over time, though at a lesser rate as “we look at the complications of COVID and depending on how banks respond to their dilemma”.
This then results in “unprecedented rental increases that are not driven by market dynamics.”
Average price increases
April Monetary Policy Statement indicated that the average price for residential properties sold in the fourth quarter of 2023 was P891,184, a 9% increase, compared to the previous quarter, attributable to the increase in the number of high-valued properties traded in the quarter under review. A Riberry Report revealed that the residential rental market showed signs of improvement in the fourth quarter of 2023, compared to the third quarter, driven by good demand for rental and purchases of houses in prime locations, while their supply was limited.
Diminishing adverse effects of COVID-19
The May Financial Stability Report indicate that credit risk in the mortgage sub-sector remains low, with commercial banks maintaining moderate loan-to-value (LTV) ratios, although the ratios have reached 105% in some isolated cases. The moderate LTV ratios, the report said, as well as security in the form of property financed limit the expected losses of banks from mortgage credit default. The proportion of impaired mortgage loans to total mortgage declined from 6.9% in December 2022 to 6.3% in December 2023, reflecting in part, the diminishing adverse effects of the COVID-19 pandemic on households.
2023 vs pre-pandemic
But FNB Botswana said the real estate market in 2023 has yet to fully rebound to pre-pandemic levels, with sales prices and rental rates still below the level attained in 2019. The bank said the enduring ramifications of the pandemic and global economic uncertainties have impeded the pace of market recovery.
Source: FNB Botswana
FNB showed that in 2023, the average sales prices for residential properties experienced a 5% increment vis-à-vis 2022, indicative of a consistent uptrend in residential property valuations. The capital city, Gaborone, registered the most substantial price escalation at 7%, underscoring robust growth. Francistown and Maun observed moderate price upticks, with increments of 4% and 3%, respectively.
Source: FNB Botswana
FNB Botswana shows that the volume of residential property transactions augmented by approximately 6% compared to the preceding year, underscoring a burgeoning demand for housing.
History Of Housing Prices
Two years ago, GoSmartValue, an online real estate valuation platform, raised curiosity about how home prices have grown at different rates regionally. For example, its research indicated that the largest increase in the average price of a single-family home in the Southeast peri-urban areas went up by over 700%.
GoSmartValue, went back to 2005 to establish the trends in housing prices. GoSmartValue found that in Gaborone alone the Average Low-Cost house was going at P120 000 while the High-Cost house was going at P750,000. Since 2017, GoSmartValue said, a low-cost house has reached P680,000 while high-cost houses sell at above P1.2 million.
“Throughout the country, housing prices have increased by over 200% with urban areas seeing the highest growth rates and speculative areas such as Gaborone, Palapye, Kasane, and Maun seeing high levels of growth spurts caused by high anticipation of economic growth, anticipated impact of development of BIUST, and Tourism amongst others,” GoSmartValue wrote, adding that average salaries and wages in Botswana have not risen at the same rate as home prices.
According to Tradingeconomics, wages over the same period grew by 50%. This coupled with inflation or cost of living showed a growing disparity between the two, GoSmartValue said.
“This gap has left many people unable to purchase property, particularly in recent years. Although, there are many homeownership efforts aimed at combating this reality.”
Statistics Botswana data estimates formal sector average earnings per month at P7,396 for citizens, P15,863 for noncitizens and P7 692 for all employees in the third quarter of 2023. The average monthly earnings for all employees are estimated to have increased by 13.1% or P889 from P6 803 estimated for the fourth quarter of 2022, therefore, higher than the change in the consumer price index (general prices) and the inflation objective.
Outlook
FNB Botswana expects government initiatives geared toward promoting affordable housing and enticing foreign investment to positively impact the real estate sector. The bank anticipates continued growth in residential sales prices in 2024, albeit at a more subdued pace.
The bank sees robust demand for housing persisting, propelled by population expansion, urbanisation trends, and the imperative for affordable housing solutions. The development of integrated residential communities and mixed-use projects is expected to redefine the landscape of residential real estate.
Comments