By Morris Aron

Rising price of steel is threatening to negate gains made in the real estate sector by increasing construction costs.

The fourth quarter HassConsult Property Index released on Tuesday said residential rents rose between August and December 2010, including the high-end apartments that last saw such a development in 2007 due to a demand-supply mismatch.

House prices are also on the rise with most demand being felt for fairly priced middle income housing units.

"Rental yields held above the 6 per cent return, remaining far ahead of the Treasury Bill yields of between 2 and 2.25 per cent," said Nathan Luesby, one of the consultants behind the HassConsult Property Index.

"Overally, closing prices rose by 3.9 per cent between the period specified after almost being flat for the first nine months."

Analysts say with stronger closing price figures being felt most in the middle-income segment, it means more people are buying property through mortgage backed financing as opposed to cash-fuelled purchasing.

Despite, the resurgence of interest in the property scene, the high-end apartment is still reeling from effects of over-supply that climaxed in 2007.

On average, property sales rose by 5.8 per cent in 2010 up from 0.8 per cent in 2009.

But even as the residential property sector points to good returns, the price of steel, a key component in the construction industry is shooting through the roof world wide posing an imminent threat in input costs.

Statistics and projection trends indicate that steel prices will triple before the end of the year due to rising demand for the same in China and a number of other countries.

In Nairobi, steel prices are rising by an average of 20 per cent per week.

"Steel prices has become a serious cause of concern in the last couple of months due to the cost implications," said Farhanna Hassanali, of HassConsult.