Sakina Hassanali, head of development consulting and research at real estate firm Hass Consult, is not a big fan of the phrase ‘property bubble burst’ in relation to the Kenyan situation.
And she is not alone, many real estate stakeholders have previously been at pains to dissociate what has been variously referred to as a slump or market slowdown in local market from the more ominous term, bubble burst.
When releasing the Hass Property Index quarter two report for 2019 late last month, Hassanali made a point to explain what the woes of the local property market are and what they are not.
No cheap finance
“In Kenya, we’re not at any risk of a bubble, what we’re at risk of is just a slow down. And this and we can see it in the figures. In the last quarter the property prices went down three per cent,” she said.
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But what is the distinction? Hassanali went ahead to explain that the model of financing available locally makes it “physically impossible to have a bubble” at the moment.
“A bubble is caused when everyone has access to really cheap finance, and say somebody here can buy an apartment and pay Sh50,000 towards the mortgage, but they can rent that same property at Sh70,000. So they don’t actually have to pay anything month on month,” she says, adding that in such a case then one does not need a lot of money apart from the deposit to own a property.
In this case then, she explains, you have millions of people buying property, and then property prices rise.
Then when the economy slows down, all those people who have bought properties who actually didn’t have the money to find them to fully (and) were using the rent the tenants money to pay for their property start struggling.
“When those tenants can’t pay or start leaving the houses, the person who bought it also can’t pay for the house. So the bank will get all these properties returned to them,” says Hassanali.
In this case then, Hassanali says, the bank suddenly has all these properties that it has to massively discount to sell.
“So a bubble is turbocharged by the by cheap finance, we don’t have cheap finance right now what’s happening is for someone to buy a property, they actually have to have all the money for it,” she says.