High interest rates to hurt Kenya’s real estate investment, experts warn

HassConsult Research and Marketing Manager Sakina Hassanali addresses the Press during the presentation of the Hass Price and Land Indices for Q2 2015.

NAIROBI: The move by the Central Bank of Kenya (CBK) to increase cost of credit is likely to affect both developers and buyers of property, especially those in the low-cost housing segment.

This is according to HassConsult, a real estate firm, which has expressed caution in awaiting the overall effect of the recent decision to implement two increases in recent weeks of the Central Bank Rate (CBR), amounting to 11.5 per cent. These recent increases, which occurred in June and this month, are the first seen in nearly four years.

Analysts caution that the recent decision to increase the Central Bank Rate (CBR), for the first time in almost four years by three points, may negatively affect price growth trends in the first half of 2016. Historically, high lending rates have led to market stagnation and a rise in demand for rental property.

“Historically, property development and investment in lower cost areas and in lower cost housing developments has either stagnated or declined when lending rates have risen as the cost of lending is too high both for developers and for buyers,” Head of Research and Marketing at HassConsult, Sakina Hassanali said.

She made these remarks yesterday while releasing the 2015 second-quarter Hass Property Index and the Nairobi Land Price index at the Hilton Hotel in Nairobi.

“Development dollars were usually routed to high-end property investments during times of high lending rates, as interest costs become prohibitive for lower-cost housing buyers and this in turn triggers a rise in demand for rental properties and a subsequent increase in rental prices,” said Ms Hassanali.

The Hass Consult property prices indices show an increase in asking prices for properties, rental prices and high returns on investment in the real estate business.

AVERAGE VALUE

For instance, the average value for a property has gone from Sh7.1 million in December 2000 to Sh26.7 million in June 2015. The average value for a 4 to 6 bedroom property is currently Sh40.2 million compared to Sh12.9 million for a 1 to 3 bedroom property.

The average rental for a property has gone up from Sh38,516 in December 2000 to Sh137,311 in June 2015. The average rent for a 4 to 6 bedroom property is currently Sh222,685 compared to rent for a 1 to 3 bedroom property, which is currently at Sh75,531. During the function, HassConsult noted changes in the land prices in 18 suburbs within Nairobi city and its environs.

The HassConsult and Stanlib Land Index for the second quarter of 2015, covered Nairobi’s suburbs as well as satellite towns of Athi River, Juja, Kiambu, Kiserian, Kitengela, Limuru, Mlolongo, Ngong, Ongata Rongai, Ruaka, Ruiru, Syokimau Thika and Tigoni.

Over seven years, Athi River posted the highest increases in land prices at 8.4 per cent increase followed by Juja, at 7.83 per cent. Kiserian and Kitengela saw the biggest increases in satellite areas over the past quarter, growing by 5.4 per cent and 5 per cent respectively.