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Kenya’s property market records over 2,000 new mortgages

NAIROBI: High property prices last year played the greatest role in hampering aspiring home owners from acquiring dream homes through a mortgage, says the Central Bank of Kenya.

This is unlike 2013 when high interest rates were cited as the biggest obstacle to mortgage uptake in the country, followed by high property prices.

The mortgage portfolio also increased by 2,134 from 19,879 in December 2013 to 22,013 by December last year. The value of mortgage loan assets increased by Sh25.9 billion from Sh138.1 billion in December 2013 to Sh164.0 billion by December 2014. The average mortgage loan size also increased from Sh6.9 million in 2013 to Sh7.5 million in 2014.

But high interest rates are poised to be a major obstacle this year as CBK recently raised the Kenya Bank’s Reference Rate (KBRR) - the base lending rate - to 10 per cent, up from eight per cent. Commercial banks, which have been lending at an average of 15 per cent, are expected to in turn increase lending rates.

“The move to raise the KBRR is likely to slow down mortgage uptake,” said Sam Manjau of Abec Real Estate. “Banks will respond to the change and loans will have to be negotiated with the new rates in mind.”

This will also be a blow to the Government, which has been asking financial institutions to lower mortgage lending rates to single digits to make housing affordable.

Last year, Deputy President William Ruto said that negotiations between the Government and banks had started. He didn’t give any timeline.

Over the past year, banks have come up with new products, including offering over 100 per cent financing. Other products are targeting the lower end of the market, financing developments that are Sh3 million and below.

“The market is still slow because there are finer details in the packages offered that are still expensive. Otherwise, more Kenyans would taking mortgages,” said Mr Manjau.

According to the Housing Price Index by Kenya Bankers Association (KBA), house prices grew by 2.75 per cent during the first quarter of this year.

The report indicated that unlike the previous quarter when prices of maisonettes and apartments were stable, the first quarter of 2015 has seen apartments accounting for the price movements.

“There was softening of the price movements for bungalows and maisonettes, with demand and supply dynamics pointing towards apartments significantly accounting for slight movements upwards during the quarter,” said KBA Director of Research and Policy Jared Osoro.

Manjau believes that the mortgage market in Kenya will eventually take off, but only if lending rates get to single digits: “Currently, mortgage is a preserve of the well-paid and a few individuals whose employers have negotiated packages.”