NAIROBI, Kenya, Jan 19 – The tripling of interest rates late last year that affected businesses, economic growth and new construction appeared to have little effect on house prices according to the HassConsult 2011 fourth quarter property index report.
HassConsult real estate consultant Jenny Luesby said the reason why prices seemed to withstand the interest rates was due to a significantly low mortgage uptake in a housing market that is dominated by cash buyers.
“If you think about who is actually coming in to buy a house in a substantially cash market they tend to be people who have cash deposits so now they’re earning 20 percent on their cash deposits, it’s not the people who are heavy borrowers,” she said.
Luesby added that the hike in interest rates did affect the recent momentum seen in Kenya’s mortgage market that remains relatively small with a mortgage to GDP ratio of about 2.5 percent.
HassConsult Property Development Manager Farhana Hassanali noted that the trend of buyers moving down the property ladder continues with more of them opting to delay purchases and instead rent houses they would have ordinarily bought.
“Property is a long term investment so when you have changes in the market, there’s often a wait-and-see kind of approach so that’s why the option to rent. Second, it’s possibly speculation that prices will come down,” she explained.
The apartments market benefited significantly from the property downgrades by buyers, with the asking prices for apartments rising by 1.4 percent and asking rentals by 2.1 percent from October to December 2011.
On the other hand, asking prices for houses fell by 0.7 percent in last year’s fourth quarter, compared with prices from July to September 2011, this was however limited to pricing for standalone housing which fell by 1.8 percent.
Developers are expected to have a rough year ahead in the property market with new building contracted severely.
Hassanali said developers have found it hard to escape the real impact of current government policies and economic trends on the housing market.
“We now see developers retreating at speed. Very many building plans have been shelved, at least for the time being. Where construction is underway, future phases have been postponed and current phases down-sized,” she revealed.
The hiked interest rates accompanied by high land prices and rising steel costs, Hassanali added has eaten up the entire development profit, which could then see developers discounting homes to sell off quickly.
However, Hassanali did point out that asking prices for certain property segments continued to slowly climb from the fourth quarter last year, with developers seeking to cover higher construction costs.
“Asking prices continued to creep up for townhouses, and move up more strongly still for apartments, which is a sector now recovering from the over-supply of two years ago and also more in demand as householders look for cheaper home options,” she said.
In wider view of Nairobi’s price range across its property markets, working class districts were shown to bear the brunt of soaring rent prices seeing average rentals rise by 20 percent in 2010.
A special report by HassConsult analyzing price trends in Nairobi’s suburbs over the last 15 months, revealed that the lowest end of the market has delivered the most consistent, steady and largest price rises of all segments of the market.
This trend was seen in areas such as South B and Tena where averages rose by nine percent and Nairobi West, Fedha and Nyayo which all recorded eight percent increases.
The lowest rises were on the contrary seen at the top of the market in high rent districts like Muthaiga and Runda.
Suburbs including Donholm, Buru Buru, Nairobi West, South B and South C are now experiencing property prices more than three times higher than 11 years ago.
The report cited ongoing changes in the mix of properties as contributing to the trend of price jumps in the low-end market, as more apartments came up and property became more dense and smaller in these areas.