Credit constraints continue to hurt Kenya’s House price growth – KBA

House prices in Kenya for the third quarter of 2017 registered their first annual decline in the last three years attributed to a slowdown in credit expansion.

The latest Housing Price Index released by the Kenya Bankers Association (KBA) shows that there was a 0.42 percent increase – in overall house prices between July, August, and September.

This was a reduction compared to 0.98 percent growth in 2017 second quarter and the lowest price increment posted since the third quarter of 2015. 

“This is an indication that there is no- relief for the declining trend in the rate of house prices increase since the third quarter of 2015,” the report reads in part, “With the generally depressed demand in the economy and the slowdown in credit expansion, households relying on the credit market towards home acquisition have been adversely effected.”

For the last year, housing prices have been on a declining curve with an increase in prices dropping from a high of 2.20 percent as at the third quarter of 2016 and falling to 1.58 percent in the fourth quarter of the same year.

 This declining trend piqued in the first quarter of this year (between January and March) with prices increase falling to 1.10 per cent, then dropping further to 0.98 percent in the April-June period of this year, and then sliding further to the current rate of 0.42 percent.

According to the KBA Director of Research and Policy Jared Osoro, the trend on growth in house prices mirrors that of credit growth to the private sector.

 “With the generally depressed demand in the economy and the slowdown in credit expansion, households relying on the credit market towards home acquisition have been adversely affected,” Osoro said, “This has consequently influenced the house prices trend.”

 In addition, the survey noted that the sluggish demand environment has provided little incentive for increased supply of housing units, a situation that is compounded by the constrained supply of financing.

 On the demand side, potential home buyers seem to be holding back on decisions to invest in homeownership while on the supply side, investors in the real estate could also be on a wait and see mode.

Read:

• Nairobi’s property market remains subdued due to political uncertainty 
• House Prices Soften on the Back of Demand and Supply Slowdown – KBA

During the period under review, apartments accounted for 82.66 percent of the total number of units sold in Q3 of 2017 with maisonettes and bungalows accounting for 10.70 percent and 6.64 percent respectively.

Across all the market segments (lower, middle and upper), prices of apartments registered the highest rise compared to prices of bungalows and maisonettes, with the rise in prices in the latter two segments being more or less muted, the survey noted.

“The rise in the price of apartments compared to bungalows and maisonettes signals an element of the search for affordability by potential home buyers are given the lower cost of construction per unit on the developer’s’ side and therefore relatively low offer process,” said Osoro. “As a consequence, market activity appears to be skewed towards the lower end compared to the middle and the upper market segment.

 The survey further noted that the house price drivers in the quarter remained largely unchanged compared the previous quarters with the size of the house as captured by plinth area of the house, number of bedrooms, presence of backyard, master ensuite and gym area being among the core drivers of house prices during the quarter.

 “During the quarter, the type of the house was core in influencing the house prices during the quarter,” the survey reads in part. “This speaks to the difference in the interests of the various potential home buyers which would be informed by the income levels as well as the family size.”