Credit gate opens for property developers and speculators

PUBLISHED 9 DEC 2019   

The government has finally given the green light to the Bank of Namibia's initiative to loosen up the property market by reducing the size of deposit required for one to get additional residential property.

The government has gazetted amendments to the new loan to value (LTV) ratio law on 7 November 2019 by repealing the 2016 regulations which tightened up credit extension for buying residential properties by requiring buyers to pay a high deposit on additional properties.

As from last month, commercial banks can fund 90% of individual second residential property.

For third and subsequent residential properties, individuals will only pay 20% of the property value as deposit.

The central bank hopes the new LTV ratios will provide support in terms of affordability, and kick-start the property market, which has been rocked by slow-selling properties and depressed prices.

According to the latest First National Bank housing index, on average, national housing prices have recorded the lowest prices yearly since 2015, as by June this year, it cost a household roughly N$1,068 million to buy a house, compared to N$1,110 million in 2015.

The coastal region's properties were mostly hit by a weak demand, and recorded the biggest decline of 11,4%, followed by those in central and northern Namibia with 6,1% and 6,5%, respectively.

The Government Gazette shows that the loan-to-value regulations only apply to individuals with a residential property that has an active mortgage bond and outstanding balances.

Additionally, any credit extended by the bank to an individual for acquiring/buying or constructing an additional residential property with a different deed will see the additional loan being regarded as financing second, third and subsequent residential properties, subject to the new regulations.

The amendments are gazetted at a time when households are languishing in debt and are unable to service their current housing loans, as the economic environment erodes their disposable income further.

Despite the highly indebted households, Bank of Namibia governor Iipumbu Shiimi explained that reducing the deposit on a secondary house bond is a strategy to revive the depressed property market.

The FNB index also showed that the growth in transaction volumes has been decelerating over the course of the year, but the volume index shows that by the end of June, it eased from 17,4% to 27,4%.

Iipumbu concurred that the non-performing loans have increased beyond the internal benchmark of 4%. However, he said the prudence in credit extension to households will be upheld by commercial banks to ensure the situation does not get out of hand.

The aim is just to make it easy to access credit for those who want to invest in the property sector, with the hope that it creates employment, with spill-over effects to the overall economy.

 

 

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