Developers count losses in housing market slump

National Housing Corporation houses in Nairobi West. [Wilberforce Okwiri, Standard]
Growth in Kenya’s property market will remain stunted at least into the short term as lack of credit dampens growth.

According to the Kenya Bankers Association (KBA) Housing Market Index for the second quarter of 2019 released yesterday, the lack of credit has constrained the market’s ability to rebound.

KBA says the slump in the property market is a leading factor in the high levels of non-performing loans reported in the construction sector.

“The KBA Housing Price Index indicated a 1.72 per cent decline in the change of house prices during the second quarter compared to 2.78 per cent decline in the previous quarter,” said KBA head of research Jared Osoro.

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Mr Osoro said the poor performance in the second consecutive quarter points to a worrying trend that will affect both the demand and supply sides of the property market.

On the supply side, the number of building approvals has declined marginally from 2,252 between January to June 2018 down to 2,238 between July and November 2018.

An upsurge in apartment prices compared to that of maisonettes and bungalows indicates middle-income earners now form the bulk of buyers in the economy.

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At the same time, developers are opting to build more apartments in order to capitalise on the high cost of land particularly in Nairobi and the satellite towns.

“Apartments accounted for 81 per cent of the total units in the second quarter compared to 62 per cent in the first quarter of 2019,” explained KBA in part. 

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Maisonettes and bungalows, on the other hand, recorded a 10 per cent and 8 per cent decline respectively over the same period.

“The limited availability of funding to the housing market has been on the back of increased levels of non-performing loans generally and especially the construction sector,” explains the index in part. “This factor has had a negative bearing on the risk appetite of lenders.”

Earlier this year, Hass Property Index reported a glut in the high-end market for residential properties with robust demand in the middle and low-end market segments.

Attrition in numbers

Hass Consult attributed the slowdown in demand at the top end of the market to both global and local policy factors such as the flight of international residents. This is said to have eroded much of the tenant pool targeted by developers of high-end bungalows and maisonettes.

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“This steady attrition in numbers was accelerated last year in the new government drive curbing work permits,” explained Hass Consult Head of Development and Research Sakina Hassanali.

“This triggered a new uptick in international departures, which by the first quarter of 2019 had resulted in significant falls in the sales prices and rents of top-end detached houses, which fell by 4.4 per cent and 4 per cent respectively in the first 12 weeks of the year.”

Data from the Central Bank of Kenya’s (CBK) latest credit officer survey indicates that the real estate, manufacturing and building and construction sectors ranked among the highest in non-performing loans as at the end of December 2018.

“Credit Standards remained unchanged in 10 economic sectors in the fourth quarter of 2018 except in Real Estate sector where the credit standards were tightened in order to reduce the level of NPLs in the sector,” explained the CBK in part.  

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