Experts: Why Kenya is unlikely to see a property bubble

"(Housing bubbles typically begin) due to a restricted supply that takes a long time to replenish and increase. Market speculation raises demand by injecting additional capital into the market. At some point, demand declines or stagnates as supply rises, which causes prices to drop dramatically and the bubble to burst," he says.

So in 2016 and 2017, industry leaders came out to forcefully deny any chances of a real estate bubble. A bubble burst in the US a decade before had left markets sensitive to the slightest signs of an impending bubble.

Knight Frank Kenya then said that a real estate bubble could only occur in well-established real estate markets.

"The Kenyan market is not experiencing a bubble but the normal real estate cycles of rising demand, peaking market, falling market then bottoming out and the rapid price increments witnessed are because the Kenyan real estate market is in the rising phase that is characterised by low supply, high demand leading to increased prices," it said in a report.

HassConsult's research and marketing manager Sakina Hassanali faulted those who were waiting to benefit from a burst, saying there was no bubble to burst in the first place.

"At such a time that mortgage repayments equal monthly rentals then people would rather buy than rent. Until such a moment, you will not see a bubble burst. Right now, there is no bubble because most of the purchases are cash based. A bubble only happens when there is cheap finance, which we do not have," she was quoted by Property Savvy magazine.

The fears did not go away.

In 2020, as the Covid-19 pandemic ravaged the world, demand for residential houses again increased rapidly. Instead of the typical adoptive model of housing happening, in which houses should filter (trickle) down to the bottom of the pyramid and become more affordable, it was rent that trickled down.

When this happens, it causes high demand for the few available houses to the lowest levels of the pyramid and therefore an increase in rents, pushing people lower down the rungs until the very poor cannot afford decent shelter; their houses now attracting occupancies of way wealthier people. Everyone was looking for bigger shelter and, if possible, affordable houses to buy.

Many years after the heated debate on a possible bubble, are we on the cusp of another bubble? With the country's population now passing the 50 million mark, will high demand for housing not inevitably generate this bubble? Is the actualization of the affordable housing project a panacea to such a problem? Shall we manage to build these 200, 000 affordable units a year?

George King'oriah, an economist, says that the bubble is unlikely to be experienced in Kenya any time soon.

"As long as we have greedy people owning property in the face of an infinitely increasing population, property values can only flatten out and fall in a ratchet pattern," he says. "But a bubble is very unlikely."

Mr Ndege says that as much as there is demand in real estate, the purchases are "not reckless enough to warrant a bubble since it is hard to access credit and mortgages", with the latter's uptake still wanting in Kenya.

"Real estate is a capital-intensive investment and is usually thought to be a reserve for the affluent in society. However, mortgages, as an alternative to finance home purchases, have turned many into homeowners. In the Kenyan context, however, a host of factors have seen the mortgage market underperform in the sense that, with a population of about 50 million, about 30,000 mortgage accounts exist," he says.

"Lack of long-term capital for the lenders to advance mortgages to borrowers has been the biggest contributor to the low mortgages despite the government's intervention through the Kenya Mortgage Refinance Company (KMRC) whose mandate is to lend to the financiers."