Botswana’s property sector has long been a bullish emerging market, yielding high returns for agile institutional and individual investors over several economic cycles.
While prices have seen a consistent upswing, driven by strong demand in recent quarters, the market is beginning to slow, with prices tipping downward—ringing alarm bells for the property sector.
In the investment world, property is often regarded as a “darling” sector due to its low downside risk and ability to self-finance through refinancing options. In Botswana, the property sector has remained strong, as expected in any developing country experiencing rising urbanisation trends. However, the pace of investment and the ongoing demand-supply tension have worried experts, who have frequently raised red flags about potential price declines and the formation of asset bubbles.
The latest to weigh in is the Bank of Botswana, which recently echoed the findings of local property company Ribbery Property. In its latest property market report, Ribbery disclosed a softening in the sector, with property prices in the first quarter of 2024 falling due to oversupply, particularly in the residential market.
“According to the latest (2024 Q1) Ribbery Report, the residential rental market showed signs of deterioration in the first quarter of 2024 compared to the fourth quarter of 2023. This is evident from the rising number of properties available for rent and declining house prices,” the bank stated.
The report also highlighted pressure in the middle-end housing market, which experienced soft demand in the first quarter of the year.
“Additionally, middle-end houses to let experienced weaker demand and supply, while the rental market for low-end properties continued to show reasonable demand,” the bank noted.
The booming property market has attracted cash from various investors, particularly pension funds, whose capital is returning to the country as changes in pension fund rules have led to increased investments in local assets. This, in turn, has increased the supply of property assets in the market, contributing to the price plunge.
Economics 101 suggests that when supply outstrips demand, prices are bound to fall.
“Conversely, there is an oversupply of upper-end properties, leading to a possible decrease in the rental prices of these houses. The average price for residential properties sold in the first quarter of 2024 was P854,000, a 4 percent decrease compared to the previous quarter,” the report revealed.
Government, the largest consumer across all sectors in the country, helped sustain demand for rental office space.
“The demand for office space remains reasonable and has improved slightly as the Government has occupied some vacant properties. Despite a slower pace, there continues to be reasonable interest in office space within the Central Business District, Showgrounds, and Government Enclave,” the report noted.
In addition, limited construction of new office space is expected to create excess demand for the existing stock. Like the previous quarter, demand for retail space remained fair across all market segments, while supply is set to increase with the proposed construction of two malls in Mogoditshane. Other areas with strong demand for retail space include Jwaneng, Selebi Phikwe, Maun, and Mahalapye.
These locations are seeing retail schemes, anchored by reputable supermarkets, at various stages of planning and construction. In the industrial property sector, the supply of unoccupied large warehouse spaces has decreased, while demand has improved. Looking ahead, demand for industrial space in prime locations is expected to rise further.
A report published this year by First National Bank Botswana (FNBB), the largest commercial bank by asset value, indicated that demand for housing in 2023 continued to outstrip supply, causing prices to rise significantly throughout the year, before slowing in the first quarter of 2024.
FNBB, the country’s largest commercial bank by both balance sheet and customer base, and the biggest property financier noted that the imbalance between supply and demand is likely to persist in the short to medium term, driving continued price appreciation.
The report also revealed strong growth in rental rates, driven by changes in market demand as the economy recovers from the effects of COVID-19.
“Recent observations indicate a general upswing in rental rates across the country, reflecting a broader trend in the real estate market,” FNBB researchers said.
“Various factors contribute to this phenomenon, including increased demand for rental properties, changing economic conditions, and evolving housing preferences.”
Gaborone, driven by ongoing urbanisation, saw the highest rental rates, followed by Jwaneng, where the local economy is bolstered by the Jwaneng Diamond Mine.
“Gaborone stands out with a significant surge in rental rates, particularly in the three- and four-bedroom segments, possibly driven by families seeking spacious and accommodating living arrangements during times of transition. This specific trend warrants closer examination to understand the unique factors influencing the rental landscape in the capital city,” the report noted.
However, the report also showed a correlation between rising rental rates, particularly in larger homes, and the increasing number of properties facing default and auction.
“It appears that individuals, facing the impending auction of their mortgaged properties, are opting to secure alternative accommodation through rentals,” the researchers noted. “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.”
Data from the report suggests that demand for retail space grew significantly in 2023, driven by a thriving retail sector. Shopping malls and commercial centers saw increased foot traffic, leading to higher rental rates for prime retail locations. This trend has spilled over into areas surrounding Gaborone.
Investments in shopping malls have surged in areas like Mogoditshane, Mmopane, and Tlokweng, supported by rising populations as Gaborone’s economic growth spills over into its neighboring areas.
