Mad scramble to house the upper class

By Ferdinand MwongelaAs the rest of the population struggles to find suitable accommodation, the upper middle-income class is spoilt for choice. Real estate developers have realised that this is where the money is and they have intensified their efforts to construct homes for this class and the high-income group, while the lower income bracket has been neglected.A search on a local website run by Tysons Limited shows homes going for as much as Sh45 million. An apartment block in Umoja, an area largely considered affordable, is selling at Sh18.5 million.Dan Arum, a marketing assistant with Tysons Limited, says developing homes for the upper middle-income group secures good returns for the investor as the costs of quality fittings and furnishings (for furnished houses) are passed on to the end buyer. Developers targeting the higher end of the market have in mind expatriates, NGO personnel, Members of Parliament and the business community."However, with the current rise in property prices, individuals in the target market may choose to opt out," says Arum. "The current asking price for a lot of properties is too high for many people, including those targeted by the developers."Even then, there are people who will always buy houses regardless of the price tag. This class of buyers is not confined to only buying traditional bungalows but also apartments and town houses, which are their favourite. "The idea of a town house is gaining popularity because people love the independence of having their own houses but with people living around them," says Arum.Low spending As a result of the high property prices, Arum points out that purchasing a unit is only possible if the buyer has saved part of the cost and only needs partial financing for the balance. In addition, the attraction for the high-income groups is their ability to continue paying their mortgage or financial obligations even in the face of an economic crisis."The scenario is different for the lower income group. When the economy is down, their spending is also affected, which is why developers are shying away from them. As far as most developers are concerned, the responsibility for constructing houses for the low income groups lies with the Government," says Arum. "Private developers are in the business of making profits."Esther Karegi, the head of marketing at Regent Management Limited, concurs that the reason why there is increased investment in the higher end of the market is due to this group’s purchasing power. "People earning less also wish to own houses but they do not have the capability," she explains. "However, they can still realise their dreams if they are willing to take it slow. For instance, they can start by buying a plot and building their homes at their own pace."Arum agrees. "Mortgages can be a burden," he says. "So if someone is not in a hurry and they ultimately want to own their own home, the best alternative is to build it slowly from the ground up. This process may take years, but the joy is in the knowledge that it is your house." Production costsDevelopers maintain that the reason why house prices have escalated in the past few years is due to the increasing costs of production. "The high prices are inevitable because other factors of production remain expensive or are in low supply and developers have to recoup their investment," says Karegi. "For instance, what we were selling for Sh6.5 million a year ago is now selling at Sh7.5 million this year."Those in the middle-income group take home anything between Sh30,000 to Sh100,000 per month. They can, therefore, not be expected to meet monthly mortgage repayments of Sh50,000 for 15 to 20 years.Going by a repayment schedule provided by Savings & Loans, mortgage provider, repayment for a mortgage worth Sh4.5 million at 14 per cent interest paid over a period of 25 years would be about Sh54,171 or more if one chooses a shorter repayment period. Monthly repayment for a mortgage worth Sh8 million are Sh96,304 for 25 years or more if one opts to complete the mortgage within a shorter period. A mortgage repayment for Sh15 million paid over 25 years at an interest rate of 14 per cent translates to Sh180,570 per month.This proves that mortgages are out of reach for millions of Kenyans who desire to own homes. Only the rich and those with secure employment, which in these harsh economic times are hard to guarantee, can confidently take out mortgages and comfortably make the repayments. These high income earners also have savings to fall back on, reducing reliance over their salaries.Nancy Muthoni, head of Property Point at Housing Finance, says property prices may not go too high this year. "The rate of price increase is likely to be lower this year because of the current economic crisis the world over," she says. "Approximately 30 per cent of the housing demand in Kenya is from Kenyans living in the Diaspora who mainly purchase up-market properties. Many will not be able to invest this year."Price correctionIt is also feared that those who have already invested in the Kenyan property market may not meet their financial obligations and, as a result, default on their payments, thus compelling the property market to revise its prices downwards. "There could be price corrections in the high income properties, especially those worth more than Sh50 million," says Muthoni. "This will, however, be a short term experience since the economy is expected to improve."

Mad scramble to house the upper class

Get Full Access for Ksh299/Week.

Stand With Bold Journalism.
Stand With The Standard.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Mad scramble to house the upper class

Get Full Access for Ksh299/Week.

Stand With Bold Journalism. Stand With The Standard.

Related Topics

Trending Now

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Stand With Bold Journalism.
Stand With The Standard.