The Swakopmund Municipality could rake in N$42 million in profit, if all 120 erven auctioned late last week are paid and the market can expect accelerated land delivery in the lower to middle income areas in the near future, said Namene Kalili, manager of Research and Competitor Intelligence at FNB this week.
According to Kalili, over 600 bidders were registered for the 120 erven (potentially 5 prospective bidders per erf) up for sale and from the onset the upset price was quickly forgotten as the first lot went for N$700 per m² or N$560,000 in total. This was however relatively low as prices generally increased as the auction progressed.
He also stated that land prices did however begin to fall as the erven became bigger, prices fell from N$771/ m²' to 686/ m². Housing supply and demand at the coast explains the price trends. "The housing backlog in the middle to upper price segment currently stands at 721 housing units and therefore competition for land is high and bidders may have bid above their affordability levels."
Kalili said the data further suggest that almost 90% of the target market falls within the N$400,000 to N$800,000 price range and thus their affordability was limited to N$250,000. "Be that as it may, the final prices were twice as high as the affordability levels of the target market, which lead us to believe that the likelihood of non-payment is high."
"To add to this, banks are only willing to finance 60% of the price for vacant land in the current economic climate. Furthermore, returns on median house prices across the country are not high enough to support these prices. Finally, the coastal market is saturated with undeveloped land in the middle income segment, where property prices are on the mend, but on the back of very thin volumes thus far in 2012," he said.
Kalili also noted that land delivery in Swakopmund is expected to increase in both lower and middle income segments in the first quarter of 2013 and this should ease demand and land prices in the short term, keeping in mind that the municipality can service low income land for as little as N$100/mÂ'.
"Minimum build value is 4 times the upset prices and buyers have until 02 November to arrange for payment, while properties are expected to be developed within two years from the date of the auction. The municipality spent about N$18 million on the erven, with servicing costs relatively affordable at N$222/mÂ' for Swakopmund's middle income segment," he said.
The auction was held a day before Swakopmund turned 120 years and therefore 120 ervens was a fitting number considering the occasion.