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Why high-end real estate market has picked up in Nairobi

By KEVIN OGUOKO | May 1st 2014
A development in Hurlingham, Nairobi.


NAIROBI, KENYA: Real estate activity has picked up at the top-end of the market for the first quarter of this year, the latest Hass Property Index shows.

However, both the middle-income and low-income segments have witnessed a slowdown in activity.

Releasing the findings in Nairobi last week, HassConsult Ltd, the real estate firm behind the index, revealed that the upmarket segment had witnessed an increase in inquiries, viewing and in sales.

This was a stark difference from last year when the firm reported a general slowdown in market activity, something analysts blamed on election-related risks.

The survey also revealed that terrorism-related fear had no or little impact on market activity in upmarket areas.

“We have done an analysis in areas affected by terrorism, especially Westlands and Gigiri, both of which are approximate to the Westgate Mall (which was attacked by terrorists in September last year) and Nairobi as a whole. What the data analysis shows is that the terror attacks had little effect on the property market and the stock market,” said Sakina Hassanali, HassConsult Marketing Manager, during the release of the report last week.

She added: “In the case of the elections, people who were more sceptical were cash buyers of the high-end units. After the elections went peacefully, activity at the top end of the market increased.”


However, the lower and middle-class markets were not so lucky, having been caught up in the rent-trap. While the sales prices for both detached and semi-detached houses rose by 1.8 per cent from January to March compared with the fourth quarter of last year, apartment prices rose by 2.3 per cent on the previous quarter.

“With most middle-class Kenyans unable to afford mortgages at the current interest rates, even senior professionals are opting to move up the property ladder from apartments by renting a semi-detached house,” said the report.

At the same time, developers are facing financing cost issues, putting some brake on the rate of building. Asking rents for semi-detached or town houses rose a further 2.7 per cent in the first quarter, taking the annual rise to 18.1 per cent.

This surge in town house rents is one of the most visible signs of the problems that are now deepening, and even beginning to distort the property market, as a result of the bottleneck in mortgages.

The Mortgage Report, released simultaneously with the Hass Index Report, revealed that interest rates had not significantly changed from last year’s prevailing rates.

Standard Chartered Bank had the lowest lending rate at 13.9 per cent rate. Consolidated Bank offered the most expensive mortgage at 19 per cent, while Chase Bank is the only bank to negotiate counter rates-with individual clients in a range of between 16.5 per cent and 19 per cent.

The Mortgage Report showed that just one per cent of urban Kenyans can currently afford the mortgage repayments for a house priced at Sh5.7 million, and a further four per cent for a house priced at Sh3.9 million. Half of urban Kenyans cannot afford the loan repayments to buy a house at Sh700,000.

“To make a real difference for the average Kenyan, mortgage rates need to reduce from the current average rate of 15.5 per cent to between six and nine per cent a year… This is a major shift, but it is still not enough to allow for universal home ownership,” noted the report.


The report recommended that pension funds and insurance funds money to be channelled to the mortgage market to provide long-term funds, leading to low-interest mortgage rates.

“The banks have always argued that high operation costs and the risks involved make them charge high interest rates. The government is constituting an inter-ministerial forum where the discussion of reduction of the high interest rates by banks is the top agenda. It is our hope that our plea for the channelling of pension funds to provide long-term funds to the mortgage market to reduce the high interest rates will be one of the suggestions put forward,” said Caroline Kariuki, Managing Director of The Mortgage Company, publishers of the mortgage report.

This comes in wake of public call by President Uhuru Kenyatta on the banks to cut their lending rates and the Deputy President William Ruto’s call for an enabling environment that will see a million Kenyan families access mortgages from the current 22,000.

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