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Luxury markets slow down, but owning homes will not be easier

REAL ESTATE
By Ferdinand Mwongela | July 16th 2015

Last year, word filtered out that the high end, read luxury, property market was stabilising. Essentially in business speak, prices were no longer rising as fast as they were a few years ago.

A series of property index reports reinforced this. According to the Knight Frank Prime Global Rental Index, rents in this market remained unchanged for the first three months of this year. In addition, there was only a 0.7 per cent increase in rents in the same market, between march 2014 and March 2015.

Now, back to the basics. Logic would have it that if a certain segment of the market became saturated, then automatically — or atleast according to demand and supply business — attention would shift to other segments.

In this case, hope would be for the lower end of the market, right? We are talking sub-ten million shillings here. The Kenyan property market is still in the woods as to what to call that market segment below Sh1 million.

Now to factors depressing the market. The Knight Frank report says: “... the Kenyan real estate market has remained generally depressed due to continued terrorism threats and sporadic attacks, which have also slowed down sales in the high-end market.” All good so far.

Back to our question, should we then expect to see more property in the lower end of the market? Well maybe, but probably not.

The single biggest elephant in the room revolves around interest rates. High interest rates effectively lock out the developers who would be interested in the lower end of the market where returns are not as lucrative as the higher segments.

The other lot locked out are the build-your-own-home proponents who borrow piece-meal to finance their dream homes.

Effectively then, the available loans on the market would only make economic sense for developers targetting the luxury market, talk about a dog chasing its own tail.

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