Sluggish housing sector growth in 3rd quarter linked to high lending rates
Kenya Bankers Association chief executive Habil Olaka (left) and Jared Osoro, the director, research and policy, during the release of the KBA Housing Price Index for Quarter 3 on October 26, 2015. PHOTO | SALATON NJAU |
What you need to know:
Kenya Bankers Association Housing Price Index (KBA-HPI) for the third quarter of 2015 increased to 1.26 per cent from the 0.2 per cent growth in the second quarter.
The index tracks house prices using data from commercial banks and the National Housing Corporation.
Banks are now lending at interest rates that are as high as 28 per cent per year and KBA expects the rates to further suppress the mortgage market.
The housing sector has remained sluggish despite prices rising marginally in quarter three as homebuyers delayed borrowing decisions over high lending rates.
The rate of growth in quarter-three fell well below that of the first three months of 2015, according to a bankers’ survey. Kenya Bankers Association Housing Price Index (KBA-HPI) for the third quarter of 2015 increased to 1.26 per cent from the 0.2 per cent growth in the second quarter.
The growth in house prices is lower than the 2.75 per cent recorded in the first three months of 2015. The index tracks house prices using data from commercial banks and the National Housing Corporation.
KBA director of research and policy Jared Osoro said the marginal increase in prices is due to low demand as buyers are non-committal on borrowing to buy houses due to the high interest rates and uncertainty in other macroeconomic prices such as the exchange rate.
“As the economy entered the third quarter of 2015, there was an inevitable tightening of monetary policy on the back of volatility in the foreign exchange market. As would be expected, there was a shift of expectations towards a high interest rate regime that is shaping the decision making of households seeking to take mortgages towards home acquisition,” said Mr Osoro.
Banks have begun increasing their interest rates as a reaction to the high cost of Treasury bills. Interest on the latest 90-Day Treasury bill stood at an unprecedented 22.13 per cent.
Banks are now lending at interest rates that are as high as 28 per cent per year and KBA expects the rates to further suppress the mortgage market.
“Looking forward, we anticipate that these market conditions will continue to have an influence on the housing market going into the final quarter of the year,” said KBA chief executive Habil Olaka. Banking data indicates that there are some 20,000 active mortgages in the market but others borrow for construction.
The KBA Index indicated that demand for housing was also affected by the location of the houses, availability of social amenities, malls and access to good roads. There was preference for apartments over bungalows.
“As observed during the first two quarters of 2015, apartment prices appear to be moving more than those of bungalows and maisonettes, reinforcing the rising middle class’s preference for the relatively more affordable apartments over bungalows and maisonettes,” said the index. Other indices also show that house prices rose in the third quarter but at a slow pace.
The latest Hass Property Index, by Hass Consult, indicated that on average house prices in Nairobi suburbs rose by 1.3 per cent in the third quarter of the year, down from 2.2 per cent in the second quarter.
The Hass Property Index uses advertised house prices from 18 suburbs of Nairobi County. Kenya’s property sector is however mainly made up of cash buyers with mortgages only accounting for one per cent of sales. Hass said this factor is expected to make prices of houses and land continue rising in the long term.
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