House prices stall as high mortgage rates lock out first time home buyers

Kenya’s high-end and middle-income housing market is showing signs of flattening after years of strong growth.

The Hass Property Index 2013 released Thursday shows that the average sales price for housing units in Nairobi’s main suburbs stagnated in 2013 and in some cases dipped due to low demand.

The index, jointly compiled by Hass Consult and The Mortgage Company (TMC) Africa, shows that the average price for a house in one of Nairobi’s middle to high-end suburbs marginally increased by 0.3 per cent to Sh24,184,047 in 2013 from Sh24,102,406 in 2012.

In the last three months of the year alone the average price for a house in the main suburbs dropped by 1.3 per cent.

“We have witnessed marked slowdowns in some of our suburbs as high prices have seen Kenyans search for competitive and more fashionable locations. Suburbs such as Muthaiga, Langata and Brookside have seen property prices experience marginal falls,” said Hass Consult head of marketing and research Sakina Hassanali at a press briefing.

The survey found that in the last quarter of 2013, the average house in the upmarket Muthaiga suburb cost Sh62.1 million, down from Sh65 million in a similar quarter a year earlier.

Hass Consult also found that there is low demand from first-time buyers which is having an effect on the rental market, especially for town houses which recorded the highest increase in rent last year.

The main tenants of these houses are families that would ordinarily buy a house but due to high cost of finance opt to rent.

“With typical first-time buyers simply unable to reach the financing costs of mortgages, we are now seeing a concentration of the middle classes into Town renting, causing a surge in rents across the mid-level of the property market,” said Ms Hassanali.

The average rent for a town house increased by 19.4 per cent to Sh127,724 from Sh106,000 in 2013.

Property financiers say mortgages are still high despite the Central Bank of Kenya (CBK) having held steady the benchmark rate at 8.5 per cent since mid-last year.

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TMC Africa, a mortgage consultancy firm, said that at best borrowers have been able to get offers but rates still remain high to the point that many would-be homeowners are becoming tenants.

“No mainstream bank actually cut its rate, although a cluster of the more expensive banks, rooted in a model of more personalised and individual banking relationships, negotiated better rates, on occasion, with individual customers,” said TMC Africa chief executive Caroline Kariuki.

Hass found that the average mortgage cost 16.89 per cent as at January 23. Standard Chartered Bank had the lowest rate at 13.9 per cent while Consolidated Bank had the highest rate at 19 per cent. The difference between the bench rate and the bank rate, which is as much as 10 per cent is a sign that banks are reluctant to lend to the private sector. “They are being priced to reduce demand,” said Ms Kariuki.

Ms Kariuki added that one possible game changer for the housing market could be the railway which can make places such as Naivasha become a residential area for city dwellers from the current holiday getaway.

Government statistics indicate that Kenya needs 200,000 housing units annually but the market is only able to produce 20,000.

The introduction of new laws that have made it possible to use alternative products for financing property developments is expected to increase supply.

The Capital Markets Authority (CMA) has made it possible for the introduction of Real Estate Investment Trusts (REIT) which will allow pooling of funds for real estate projects.

Listed property developer Home Afrika is planning to raise as much as Sh2 billion through a REIT that is expected to be launched by the first half of the year.