Prospects good but Central Bank of Kenya (CBK) move on rates worrying

Kenya‘s property market showed an upward movement in the second quarter of 2015 after a lull at the start of the year.

According to the latest Hass Property Index released last week, the market is moving towards a take-off, but might be slowed down by the high interest rates as a result of Central Bank of Kenya‘s raising the base lending rate.

“After a lull in the first quarter, the market has shown positive movements in the three months to June 2015. As a result of increased buyer activity, the property market is moving into a new period of take-off in sales prices, rents and investment returns,” said the head of research and marketing at Hass Consult, Sakina Hassanali.

The house price index is based on 6,500 property price records per quarter. The first quarter was characterised by the slowing of property sales prices, with the asking prices for detached houses dropping by 1.6 per cent.

This generated an overall fall of 0.4 per cent across the property market. The second quarter revealed a take-off in asking prices for properties, increased let prices, and a renewal of the high returns on investment in the Kenyan housing market. Asking prices rose 2.2 per cent in all properties. The highest sales were recorded for semi-detached houses and apartments at 4.8 per cent and 5.1 per cent, respectively.

Rental earnings

“Landlords are currently earning over 23 per cent returns annually on let apartments in the year ending June 2015, which is the highest in the category since August 2009.Likewise, semi-detached and detached houses have recorded the highest returns since 2011 of 19.7 per cent and 10.8 per cent, respectively,” said Hassanali. On the lending rate, which has been pushed to 11.5 per cent, the highest in nearly four years, Hass Consult has called for caution.

High lending rates affect development in low-cost housing developments and investments in lower cost areas as the cost of lending is too high both for developers and for buyers.

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