Property pricing trend worrying

By FRANCIS AYIEKO

1. You have practiced real estate in the United States and now you are practicing in Kenya. How would you compare the two markets?

The two markets are different in many ways. The only similarity is the product — real estate is real estate anywhere in the world, but the way it is sold is different. For example, in the US, everything is digital.
Transferring the title from a seller to the buyer, for instance, takes a day. The whole transaction does not take as long as it takes here. There is no room for crooks. The process is tight and everything is transparent. I would say the biggest difference is the process.

2. The process is quite efficient in the US…

It doesn’t leave room for manipulation and all that. And after the bubble, things changed a bit…there was a bit of room to manipulate pricing before the bubble with sellers working with lawyers and appraisers.
Unlike here, a valuer can only practice in a given state. A while back, a seller could “dictate” to an appraiser how much he wanted the property to be sold at. That changed after the bubble. We see that a lot here.

3. Talking about the bubble, you left the US at the height of the worst economic crisis triggered by the housing market. What lessons do you think Kenya’s real estate market can learn from that?

First, we need to define what a property bubble is and what caused it in the US. The bubble was caused by oversupply of property. Two, it was also caused by easy credit — buying a property was, to some extent, easier than buying a car. All you needed was your social security number (the equivalent of PIN in Kenya), your ID and some kind of job, which didn’t have to be verifiable as long as you had good credit — if you were able to pay your bills. That was enough to get you a mortgage.

4. Aren’t we likely to get there?

I don’t really see any cause for alarm in Kenya. The only thing we need to worry about is pricing. We might price ourselves out of the market.
Developers won’t have a bubble but their property would be unaffordable. That is going to slow done the market. If properties are too expensive for an average person to afford, the market slows down.

5. How would you classify Kenya’s real estate market in terms of property prices?

Kenya’s real estate market is divided into about four different segments; ultra-low-income where there is no property developed for sale (anything from Sh900,000 to Sh2 million); the segment with property costing Sh3 million to Sh5 million (the highest pool of buyers are found here but we don’t have enough property.
It forms about 50 per cent of the total housing demand); the low-middle class, which comprises property from Sh7 million to Sh13 million (this market is vibrant and such properties are available, but there is no financing because the interest rates are so high that most people find buying such properties unaffordable); and the middle-income to high-end market where property cost anything from Sh17 million to about Sh40 million. That market is saturated.

6. What attracts developers to this last market segment?

The profit margin is better.

7. Are people buying?

Yes, they are.

8. Cash or mortgage?

I would say cash. Our mortgage account is still under ten per cent of the GDP that is including personal loans.

9. Back to the debate about high property prices and a possible bubble burst in Kenya’s housing market. What are your thoughts?

I think that debate is unfounded. Most of those who talk about a bubble burst get their facts from international media, then start panicking when they see many properties being advertised for sale. They think that is an indication that the bubble is coming. No, it is not.

The American market borrows 90 per cent to 95 per cent. Literally, everybody is on credit. Secondly, loans were cheap — about seven per cent for first-time buyers. In Kenya, we don’t have easy credit, neither do we have an oversupply of property. If our interest rates come down to, say, under ten per cent, we would not have enough properties to sell.

10. Really? Despite all the construction activity around the country?

Yes. Most of the purchases you see are either cash or some kind of short-term loans from banks or Saccos used for owner-occupier constructions. This is how most Kenyans have managed to own houses. Mortgage is still a scary subject.