Ray of hope for real estate as banks start to back off from government papers
By Peter Muiruri
| Jan 16th 2020 | 2 min read
There could be a silver lining in the dark real estate clouds as banks soften their trading in government papers following repeal of the interest rate cap.
The move could signal the return of substantial financing to the private sector that has reeled from lack of credit for the last five years. According to real estate analysts, financial institutions will be in a position to analyse a borrower’s risk and price their products accordingly.
“We are starting to see banks moving away from subscription in government papers following the repeal of the interest rate cap. They can then price their financial packages based on borrowers’ risk,” says Beatrice Mwangi, a real estate analyst at Cytonn Investments.
However, Mwangi says any meaningful results of the move including substantial cash injection into the sector can only be realised towards the end of the first quarter of 2020.
Unfortunately for the sector, recovery will depend on how fast the current backlog of finished products can be cleared from the market.
According to the 2020 Market Outlook report by Cytonn, the commercial office segment has an existing oversupply of 5.2 million square feet of space while retail accounts for 2.8 million square feet.
“We foresee a recovery period of about two years for the residential and retail market. It can take three to five years for the commercial segment as that is where we have the largest amount of supply,” says Mwangi.
On the other hand, the residential segment has increased supply in the middle to high end tiers with a decreasing demand. The slow absorption rate has been blamed on the ongoing lack of credit due to a sluggish economy.
Recently, the Government moved to establish the Kenya Mortgage Refinancing Company in a bid to pool resources for onward lending at affordable rates.
Last year, the World Bank committed to inject Sh25 billion to the private sector-driven and non-deposit taking financial institution while Shelter Afrique, the Pan-African housing financier promised to put in Sh200 million.
Still, Cytonn says this may not be the silver bullet meant to cure the ailing industry.
Applications open for Google startups funding
- How the handout economy is fueling Kenya's inflation
By XN Iraki
- Obinna Ukwuani: The techie behind top African bank's digital drive
- KCB plays it safe, picks insider Paul Russo to succeed Oigara
- Tea production drop by 31m kilos in a year
By Nikko Tanui
- Bamburi, IFC to boost procurement opportunities for women