Market dip hits low-end developers

Tough economic times over the last five years are driving building for residential purposes less lucrative by the day and no option is safer from shocks.

The hardest hit over the years have been developers for apartments and bungalows.

According to the latest Kenya Bankers Association (KBA) housing report, developers are increasingly not getting value for their money in any of the categories of houses surveyed save for maisonettes, which are showing significant improvement over the last one year.

KBA attributed the discouraging trend to “softening” of the economy, which has fuelled weak demand driven by lessening disposable income and constrained credit growth on account of “elevated” real estate nonperforming loans (NPLs).

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“In addition, the sustained decline of house prices … has further shaped market expectations and sentiments in a manner that buyers are unwilling or unable to pay the current asking prices, and thus vendors are dropping their asking prices," said the KBA house price index.

Overall, the study showed house prices contracted by 0.61 per cent during the fourth quarter of 2019 compared to 2.28 per cent in the previous
quarter.

"The outlined evolution of house prices evidently point to a market correction that follows sustained but modest price increases that had been seen over the past five years," said the report.

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Moreover, the KBA-HPI showed developing apartments for the lower end no longer pays as much especially in Nairobi and its environs.

The study found apartment developers who are counting the most losses are in areas such as Thindigua, South B and C, Kabete as well as Kiambu.

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The going is also tough for apartment developers in Komarock, Imara Daima, Membley, Buruburu, Rongai, as well as Waiyaki Way (including Uthiru, Regen, Kinoo, Kikuyu), Mbagathi Road, Ngong Road and Langata.

However, it is only developers for bungalows outside Nairobi that got a reprieve in the fourth quarter of last year after the segment recorded “modest” price appreciations.

The study located the affected bungalow developers in Athi River, Mlolongo, Mavoko, Nakuru and Ngong.

Other developers who benefited from a slight price improvement were those in Ruaka, Syokimau, Embakasi as well as Kahawa Wendani.

Consequently, the market share for apartments fell by 11 per cent from 85 per cent in quarter three to 74 per cent in quarter four of 2019.

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The share of bungalows was however subdued at nine per cent during the same period.

On the other hand, it was only maisonettes that posted a significant improvement by seven per cent from 10 per cent during quarter three to 17 per cent during quarter four.

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InvestmentReal EstateKenya Bankers AssociationKBA