By Morris Aron

The reality of the dwindling fortunes in the property market has hit homebuyers in Nairobi’s upmarket neighbourhoods raising concern that many may sink into debt.

Market correction for property in the high class neighbourhoods entered the third year with both prices and rentals stagnating, and even falling, according to the 2011 fourth quarter Hass Property Index (HPI).

According to HPI — Kenya’s only index on real estate — property prices in high-end neighbourhoods fell by an average of five per cent while rental income in neighbourhoods equivalent of Nairobi’s Hurlingham (and above) remained stagnant over a corresponding period in 2010.

This came at a time when the middle-income neighbourhoods continue to rise, both rental income and value, due to the emerging middle class growing appetite for home ownership.

"We are seeing homeownership shifting to cheaper housing options," said Farhanna Hassanali, marketing manager at Hass Consult.

"The shift comes in the backdrop of squeezed household budgets on inflationary pressures near static pricing in housing."

In the high-end market, closing prices — which is the actual price an individual buys a house — dipped by close to two per cent in the last quarter of last year.

The worst hit areas include Westlands, Brookside, Runda, Muthaiga in Nairobi, and Thika town and its environs.

Property analysts say that the demand-supply mismatch was largely to blame with developers building far too many houses that are highly priced for a market segment that only so many people can afford.

"Only a few people can afford to buy or rent high-end properties," said Nathan Luesby, a consultant with Hass Property Index.

While it is all gloom for developers in the high end of the market, analysts say that there are opportunities which will present themselves in the form of bargains, offers and discounts as investors look for ways to off-load the properties in the market.

The trend, analysts also presents an opportunity as it signals that the market has shifted and points to the immense business opportunities in the middle and low-end of the market where there is high demand for residential housing, especially in Nairobi.

Housing needs

"What this means is that there are going to be opportunities for discounts and bargains on property transactions in areas where stagnation in prices and rentals have been most prominent," said Hassanali.

"It is also a clear signal to developers to start looking at the lower-end of the market where demand is highest and housing needs are most acute," she said.

But while the high-end of the market is undergoing market correction, chances of a bubble burst that may be characterised by a sharp dip in house prices is highly unlikely as the upper middle class segment remains steady while the middle income segment continue to record robust growth in both property prices and rental icome.

According to the HPI, middle income areas such as South B, South C, Nairobi West, Doonholm and Buru Buru among others recorded a rise in both property prices and rentals of close to 20 per cent.

The biggest rises in average prices over the last 15 months were recorded in South B, and in Tena, where the averages rose by nine per cent, followed by Fedha, Nairobi West and Nyayo, all of which recorded eight per cent increases.

Generally, property prices in these suburbs are now more than three times higher than 11 years ago.

Construction materials

"The middle market continues to achieve higher sales, as developers recoup extra costs of land and construction materials in a market where demand remains solid," said the report.

Analysts have attributed the development mainly due to the demand for housing from the emerging middle class, the availability of a myriad property financing options and increased awareness on home ownership.

Going forward, the future of the real estate market appears bleak with the current regime of high interest rates, changed market perceptions on the sanctity of title deed following recent demolitions in areas such as Syokimau and the high inflation trends diminish potential buyers willingness to buy such properties.

Economists, bankers and investment analysts told Financial Journal the ball lies in the ability of financiers to come up with innovative ways to lure buyers even with the current high interest rates and rates to assume normalcy in the shortest time possible.

"Banks will continue to restructure loans, giving owners more time. The old mortgage payers are unlikely to pay the current high rates," said XN Iraki, an economics lecturer at the University of Nairobi.

Necessary information

"High interests, however, will mean the demand for mortgages will be low. However, the inefficiency in our market might mean this market takes longer to adjust."

Already financial institutions seem to be listening. A number of mortgage financier have announced plans that they will be in touch with their customers to see ways of mitigating the current high interest rates, a move that will ensure some level of normalcy in mortgage payments.

Industry players say real estate is a resilient sector that has a time lag before any changes in the economic scene affects the property business.

Stephen Muchiri, director of Roack Consult, which recently launched a Sh20 billion Catellano Waterfront housing project comprising of 300 units, which are targeted at the middle income, housing is a basic need that individuals will always seek to own and financiers seek ways to assist buyers own houses.

Other analysts say that a long term solution lies in the ability of buyers, sellers, financiers and policy makers to avail data on the actual level of demand and supply of housing so as to make informed decisions.

And things are looking up.

The ministry of Lands and Housing plans to launch a countrywide property index and a property data centre for investors, developers and buyers to access necessary information required before investing, buying or selling.