CBK rate cut reinvigorates local housing market

By Njiraini Muchira

After a protracted slowdown, the real estate sector is on a rebound, driven by declining interest rates.

Findings on industry trends show that over the past two months, the property market has witnessed a renewed sense of optimism as commercial banks reduce interest rates. This comes after the Central Bank of Kenya cut its rate to 13 per cent last month.

According to the HassConsult Property Index for the third quarter of this year, the drastic cut of the CBR that stood at 16.5 per cent in July and subsequent reduction in lending rates by commercial banks has reignited development and buying of property.

However, the flipside of the declining interest rates has been that developers are increasing the prices in desperate efforts to recoup on investments made during the high interest rates regime.

“As the CBK rates began rising, the sector was at a near-low in terms of turnover and activity. At the sight of rate cuts, many developers moved to push up prices, with asking prices rising by more than four per cent in each of July and August,” said Sakina Hassanali, HassConsult Head of Marketing and Research.

The dramatic shift in interest rates in recent weeks has also resulted in the average mortgage interest rate declining to 19 per cent, from an average of 22.5 per cent three months ago when buying activity had dropped to a two-year low.

Significant jump

Last month, when the buying side springs to life with buyers queuing to view and flurries of enquiries,  prices recorded a significant jump. Asking prices for town houses increased by 1.2 per cent, standalone houses by 3.4 per cent, apartments by 3.6 per cent, while rent also recorded a sharp rise at 4.2 per cent for apartments.

“The third quarter brought concerted price rises in the rental market, as landlords – facing robust demand  – also moved to cover rising costs,” noted Hassanali.

Meanwhile, pressure on tenants is expected to worsen following the decision by the Kenya Revenue Authority to enforce taxation of real estate, and plans by the Government to re-introduce capital gains tax.

Just last week, President Kibaki urged financial institutions to develop appropriate and more affordable mortgage facilities customised to meet the needs of potential customers, especially the low income earners. This, he said, would ease the burden of provision of decent and affordable houses to Kenyans.

Vibrant economy

He said it was unacceptable for Kenya’s vibrant and growing economy to have less than 20,000 mortgages. Investments in the real estate sector is expected to accelerate in the coming months as Kenyans in the Diaspora become significant players and commercial banks also seek for projects to finance.

According to Vision 2030 master plan, the country must invest in at least 200,000 housing units annually in order to fill the huge housing gap. Currently only 100,000 units are being put up per year.