Property prices in correction mode after lengthy speculation

By Morris Aron

Findings of a research by property firm HassConsult has confirmed rampant pricing speculation trends in the real estate sector, even as market correction continues in the middle and high end sectors of the residential market.

The findings have, however, ruled out any chances of a property bubble burst, citing the high fragmentation of the Kenyan property market, where there is a skewed housing supply trend, with some areas being over supplied and others facing an acute shortage.

The Hass Property Index, released yesterday, indicated that the asking prices (the price which developers quote) for townhouses and apartments in Nairobi fell in the second quarter of this year by 0.4 per cent, after a surge of 7.4 per cent in the first quarter.

Surge in optimism

"When selling prices rise, we know that more people have to pay more to get the house they want, and in those circumstances asking prices will also rise," said Jenny Luesby, the managing director of African Laughter, which conducted the research.

"But when asking prices rise, but selling prices don’t, there is almost a surge in optimism that times are improving, rather than any real improvement in the market."

HassConsult statistics indicate that in the same duration of the research, selling prices (the price at which houses are finally sold) gained marginally by 0.5 per cent in the second quarter of this year, after an 1.8 percent gain in the first quarter, and a 0.4 per cent gain in the last quarter of last year.

Property analysts say that the continued market correction in the middle and high end residential market brought about by over-speculation in pricing is bad news for individuals who took mortgages and bought the houses with the intention of letting, as rents continue to fall.

HassConsult property Index indicates that average rent in the middle and high end residential market fell by 0.2 per cent in the first quarter.

"Rental prices have remained flat in the second quarter, with the arrival of new ample supply and some tenants converting into home ownership," said Farhana Hassanali of Hass Consult.

"We anticipate some subdued rent prices ahead, but almost certainly at permanently reduced rental yields."

The first quarter findings of the Hass Property Index — which is Kenya’s first shot at a property index after numerous attempts failed, due to misunderstandings among property players on the need of such an instrument — indicated that residential house prices in Nairobi’s posh areas fell by 1.4 per cent and 2.2 per cent in the second and third quarter consecutively of last year. The current trend is in deep contrast with trends in 2007 and 2008, when house prices appreciated by about four per cent every quarter, translating to a 30 per cent per appreciation per year.

First admission

The announcement marked the first admission by a property company that the money-minting era in the real estate sector that spanned three years, may be coming to an end.

Last year, Ben Woodhams the managing director of property firm Knight Frank, warned that the level of transfer transactions for properties valued above Sh20 million was near ‘stand-still’.

Despite the warnings, most developers and financiers continued denying the facts, saying demand for housing was at its peak. The researchers arrived at their findings and conclusions based on information from 13 other leading real estate firms.