A JUNE 2021 analysis by the Bank of Namibia has found that Namibian homeowners owe commercial banks about N$26,1 billion in mortgage loans, but these houses are now valued at N$41,5 billion.
To this end, the bank says households have amassed N$14,9 billion equity on these properties.
Although this is monetary, the bank said whether it could be used as collateral for acquiring additional property is at the discretion of the commercial banks.
The build-up value can, however, be used as a cash-in.
“If an individual decides to sell the property, he or she will be able to repay/settle the outstanding loan with the commercial bank concerned and still remain with a surplus to either save or invest or pay a deposit on a new property,” said the central bank’s spokesperson Kazembire Zemburuka.
The central bank’s analysis emanates from a recent update by the national Macro-prudential Oversight Committee’s assessment on the Namibian financial system, where it was found that the system remains “resilient, solvent and sound, despite the Covid-19 pandemic and otherwise challenging economic conditions”.
Of the identified strengths were that the committee had not observed any undue upward pressure on asset prices that could adversely impact the stability of the financial system.
This was particularly because “the property market was already under pressure over the last few years and prices have stabilised,” the committee said mid-July.
The committee, chaired by governor Johannes !Gawaxab, however, noted that there was a significant positive equity build-up observed where current housing valuations exceeded outstanding mortgage balances by a substantial margin.
This is the N$14,9 billion excess referred to above.
“The key driver of the accumulated equity in the residential mortgage market is the time span for which individuals have held mortgages at most of the major commercial banks,” said Zemburuka.
He added that most of the mortgages have been on the loan books of commercial banks for more than 10 years, and households have been repaying their loans resulting in a reduction in the loan balance, hence an equity build-up over time.
“Moreover, house prices increased significantly above the overall average inflation rate for Namibia from 1994 to 2017 resulting in a major increase in the equity build-up,” he said.
The market value of residential properties in the primary mortgage market is estimated at N$41,5 billion in June 2021, which compares favourably with the outstanding balance of N$26,1 billion during the same period.
“This implies that equity accounts for 57% of the outstanding balance and in the event of all clients defaulting, banks will be able to recover the market value of the property by selling such properties, and there would still be a surplus/positive equity of N$14,9 billion,” said Zemburuka.
The price increases beyond the bank’s mortgage valuation assisted households to gain more equity in their bank-financed houses.
Mortgages still remain king for Namibian commercial banks, with a half of the consolidated sector’s loan book tied in houses and other properties. It is also the biggest revenue source for the banks, bringing in more than N$300 million every month.
Zemburuka said although there is high concentration in the sector, there are no major stability risks on the horizon.
“The key aspect that should be addressed regarding the housing market is to accelerate the supply of serviced land. This will result in increased supply of houses, particularly in the low-income segment of the market where demand is very high,” he said.