Russia-Ukraine War may affect Namibian property market

• By Josef Kefas Sheehama

THERE is a likelihood of interest rates rising as Bank of Namibia may change its accommodative stance in order to curtail inflation. The price of building materials like cement may increase as oil prices go up.

The unfolding conflict could spell a potential crisis for Namibia’s property market. The upside inflation, and therefore upside interest rate risk, and downside economic growth risk, are the basic macroeconomic risks that appear to emanate from the unrest, the magnitude of which is highly unpredictable. 

The impact would be felt in the form of an increase in cost of building materials, rising crude oil prices and a possible increase in borrowing costs. Higher material costs coupled with higher mortgage rates, will hamper housing affordability.

Higher mortgage rates will slow home buying demand over the course of 2022, and the Russia-Ukraine crisis will add short-term volatility to the bond market. If the Ukraine crisis deepens, then there may be a negative impact on the overall economy and the property market.


There may be an impact on the overall economy in terms of cost of manufacturing and supply chain. The price of factor inputs for real estate is likely to go up as a result and real estate developers, who are already operating on thin margins, may not have any option but to push up prices.

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Russia’s invasion of Ukraine carries huge risks for a world economy that’s yet to fully recover from the pandemic shock. On the demand side, due to inflationary pressure on the Namibian economy, the Bank of Namibia may have to change its stance, which may in future lead to an increase in the repo rate as well.

If this happens, there is a likelihood of mortgage rates inching up. The impact will be felt on both demand and supply sides, which will not augur well for the property market. The luxury real estate market may feel the disruption the most, as financial resources homebuyers use to pay for home purchases, such as stocks and cryptocurrency, have been volatile since the conflict began. 

The global unrest also could give Namibian consumers the anxieties and prompt them to cut back on spending and economic activities. It’s all bad for the economy and housing.

The conflict could put more pressure on rising oil and food prices, which, in turn, could weigh more heavily on consumers’ household budgets.

The conflict also means the price of gas and oil is rising significantly, which is likely to push inflation up way beyond the Bank of Namibia’s prediction. The negativity around inflation prospects as a result of the Ukraine conflict led to some sell-off of Namibian Government bonds.

While this is not a major sell-off in bonds to date, it does suggest that the Ukraine crisis’ fuelling of heightened inflation and interest rate fears would likely exert upward pressure on local property capitalisation rates, and thus be a negative for property valuations.

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Buyers are aware that this could put banks under pressure to raise interest rates, which would make mortgage borrowing more expensive. Anyone considering a purchase needs to be comfortable with this risk and not everyone will be. That, of course, will make housing, construction, and consumer goods more expensive.

Furthermore, industrial property may weather an economic storm of moderate proportions and could quite easily see renewed weakness that could return them to rising vacancy rates and further downward pressure on rentals.  

Industrial property’s link to the global economy is quite strong via warehousing and logistics space used for imports and exports, as well as the local manufacturing sector’s strong trade links to the rest of the world. The office market is arguably the least directly exposed to the potential global economic impact from the Ukraine war, although it does house certain tenants who trade with the world.

But its potential impact is more indirect, via the slowing economy impacting on the number of office worker jobs, in turn exerting pressure on office space demand. Higher interest rates, too, would exert additional pressure on both the landlord and tenant population.

war impact

The potential war impact on the domestic residential rental market is tough to call, depending on how big the magnitude is. 

The rental market will strengthen as interest rates rise, with the economy and tenant payment performance both recovering after the hard lockdowns, and a greater group of would-be home buyers postponing their home buying to remain in the rental market for longer while rates rise.

To this end, the Ukraine war impact remains highly uncertain, with much depending on how long it continues, its final outcome result, and what happens in terms of global sanctions, boycotts and reaction to them.

This matters to the property market because expensive gas hurts consumer spending and raises the input costs of industries. In turn, construction costs will rise, leading to longer lead times for housing development and extending the painful supply shortage the property market.

If anything, the war might keep mortgage rates lower for just a bit longer. Conflicts and market volatility tend to push investors towards safer asset classes like treasury bonds and mortgage-backed securities.  

But the seemingly likely impact is an inflationary impact of some magnitude, which in turn heightens upside risk to both short and long-term interest rates, along with potential downward pressure on global economic growth.

For property, the main potential impact points are via upward pressure on cap rates, upward pressure on vacancy rates, downward pressure on rentals and thus property incomes, as well as possible additional upward pressure on operating costs. It seems the war is keeping the numbers from climbing, but how long that holds remains unknown.

*Josef Kefas Sheehama is an independent economics and business analyst