The International Monetary Fund (IMF), which has in the past warned that the housing market in Namibia is a bubble waiting to burst if not controlled, this week said the value of houses in Namibia ‑ which it says are overvalued ‑ has dropped by 10 percent compared to 2015.
“The problem is getting smaller,” said Geremia Palomba, IMF Mission Chief for Namibia, this week.
IMF has in the past warned that mortgages may pose a risk to the Namibian financial system should defaulting increase since banks were heavily exposed to home loans.
Palomba said the risk has since been downsized after the Bank of Namibia introduced measures for home buyers to put down larger deposits for second and subsequent properties, in an effort to rein in speculative buying.
The apex bank announced in March that home loan applicants will be required to pay a sliding percentage of the purchase price or market value of the property as a deposit, while the lender providing the loan will finance the rest.
To buy a second residential property, the loan-to-value ratio was set at 80 percent of the purchasing price or market value of the property, while for a third loan commercial banks now fund 70 percent and clients must pay the remainder.
The central bank also said that home owners will no longer be allowed to use the equity in a first home to finance a second one, saying this worsens the cycle of debt.
The IMF Mission also assessed the financial sector and found it stable.
“The financial sector remains sound. The authorities are taking steps to manage possible risks and advance key reforms, such as strengthening bank’s liquidity monitoring and asset classification, introducing a bank resolution regime, expanding the macro-prudential toolkit, and upgrading the non-bank regulatory and supervisory framework,” Palomba said.
IMF said after years of exceptional growth, the economy has entered an adjustment phase.
“Namibia’s key challenges are to manage the ongoing adjustment process and preserve macroeconomic stability, while reducing unemployment and income inequality,” IMF said in a statement.
Palomba said the growth is expected to turn slightly negative in 2017, compared to a growth of 1.1 percent in 2016, as large constructions in the mining sector have been completed and the government continues consolidating.
“Growth is projected to resume in 2018 and accelerate thereafter to about four percent, as production from new mines ramps up and manufacturing and retail activities recover. Downside risks to this outlook include volatile SACU revenue, subdued commodity prices, and fiscal slippages that could undermine policy credibility,” he said.
Palomba said Namibia’s key challenges going forward are to manage the ongoing adjustment process and preserve macroeconomic stability, while reducing unemployment and income inequality.
He said he is happy that the Government and the Bank of Namibia have already taken steps to reduce the fiscal deficit and preserve financial stability.
However, fiscal and external vulnerabilities are rising and call for additional action, he said.
Minister of Finance, Calle Schlettwein, said during a briefing with the IMF delegation that receipts from the Southern African Customs Union (SACU) are expected to drop to N$17.3 billion in 2018 from N$17.9 billion this year.
Palomba said with SACU revenue declining, significant fiscal adjustment is needed to ensure debt sustainability and macroeconomic stability.
“Reforms targeted at addressing the shortage of skilled workers, better aligning wage dynamics to productivity trends, and simplifying business regulations have the potential to significantly boost employment and deliver more inclusive growth.”