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Housing bubble burst remains elusive in Kenya

NAIROBI, Kenya, Oct 30 – The construction industry is unlikely to experience a bubble burst now or in the future contrary to wide belief, an industry player has argued.

Housing Finance (HF) Managing Director Frank Ireri told Capital Business that the demand for housing in the country will sustain the boom in the short and long term.

“There’s a huge supply shortfall and for us in the foreseeable future and for many years to come, there will be unrelenting demand for housing and shelter for many years to come,” he said.

He pointed to the demographics in the country such as the rural urban migration and the high number of young people to support his argument.

Debate on whether there’s likely to be a market collapse in the sector has been rife. The real estate sector which has even defied the economic downturn has been on an up and up trend and which has led to the skyrocketing of property prices.

A recent survey shows that a property in the upmarket of Nairobi which at the end of 2006 which on average was valued at Sh15.7 million went for Sh20.2 million in 2008 representing a 29 percent increase.

Although many people contend that the prices are demand-driven, some have pointed fingers at what they call “greedy” developers who have been responsible for hiking the housing costs.

There has been speculation that ‘piracy money’ has also partly contributed to the distortion in the market, an assumption which the government has vehemently denied.

In an earlier interview with this reporter, Housing Permanent Secretary Tirop Kosgey had said that the only reprieve potential property buyers would get was if the demand for land fell which would translate in a drop in housing prices.

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Mr Ireri however said that several upmarket areas were already experiencing a market correction that has been driven by a wide range (of houses) to choose from which has forced investors to reduce their prices.

“We are now seeing price stability happening because at that niche market, we are having supply matching demand and in some cases even outstripping demand,” he said of the phenomenon which was mainly affecting rental houses.

A property price index by Hass Consult Real Estate Prices  released early October indicated that property prices fell by 1.4 percent and 2.2 percent in the second and third quarter of this year respectively due to the effects of the post election violence on the sector and global economic downturn.

At the same time, Mr Ireri forecasted that developers were likely to shift to putting up houses for mortgage rather than for rentals.

“I see a shift happening probably with 70 percent home buyers and 30 percent investors. That’s the positive trend we want,” he said adding that most home buyers were looking at houses valued below Sh8 million.

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