Price regulation will tame speculation

By KIBUI BUTT

Despite the fact that houses are priced out of reach for many Kenyans, the Hass Consult Property Index for the fourth quarter of last year reported a rise in apartments prices by 1.4 per cent and town homes by one per cent.

These aren’t huge increases, but the fact that world property prices continue to drop is a reason for concern. And the fact that robust growth is expected after elections — assuming the new leadership keeps Kenya open for business — necessitates the need of regulation of property prices.

However, speculators who have been taking advantage of their liquidity and foresight to buy into developments (commercial and residential) and offload them for a profit are definitely scoffing the idea of price regulation.

Don’t get me wrong, I have nothing against ‘free enterprise’ and people making a quick buck, but this will be detrimental if allowed to continue.

All the current situation does is increase the bottom line for the legitimate buyers who lease or use the space. The extra cost is passed down to the consumer via cost of goods and services. This has a negative effect on value for money.

Legitimate buyers

Quality commercial and retail space is still severely under-supplied in the capital city, let alone the other main cities and the rural areas. Despite this, the Government needs to cap the rate of property increases to avoid pricing out those who aren’t in the know and those who have to go through the rigorous process of applying for credit to buy land, space and/or a home.

In Brooklyn, New York, property prices have depreciated almost 14 per cent in the last five years while they continue appreciating in Nairobi and other towns. This is in spite of the fact that the New York has an efficient system of transport, utilities and services (police, fire department, parks and recreation). Kenya’s road and sewer networks have barely been touched since the middle of the 20th Century.

The cost of homes and land in the Central Business District have gone up over 500 per cent in some areas over the last ten years, and while demand is rife, speculation has helped drive prices to a record high and that can be seen all over the Nairobi.

To solve this problem, the Government should implement and enforce a means to uniformly and fairly account for values through an agency that focuses solely on property values. They would work in tandem with attorneys who should be responsible for registering the sales with the agency on a monthly basis.

While developers have seen the need for cheaper housing, there is still a huge disconnect between the real value of land and the emotional value a seller puts on his/her home or land.

Value manipulation

A valuation regulation agency and certified appraisers are the only way forward. In the US, the speculation that inflated the real estate value base was aided by rogue appraisers, many of whom were compensated by the banks and mortgage brokers they worked with.

About five to seven years after the fraud, the Federal Bureau of Investigations has now set its focus on value manipulation, albeit way too late.

Those benefitting from speculation aren’t any good for the real estate sector or the Kenyan economy; they put a strain on legitimate buyers by adding huge mark-ups on the original price of real estate.

The writer is a mortgage

banking expert.