NAIROBI, Kenya, Nov 15 – The rate of growth of house prices has been on a decelerating but stable path, albeit still stuck in the negative territory.
According to the Kenya Bankers Association – House Price Index (KBAHPI), house prices contracted by 0.08 percent in the third quarter, a marginal improvement from the 0.20 percent contraction in the second quarter of 2020.
The precipitous softening of the economy and the attendant fall in consumption expenditure, the ensuing income
uncertainty and low consumer sentiments induced by the COVID-19 pandemic is having adverse effects on the housing market.
This effect is seen on both the demand and supply-side of the market.
On the demand side, activity remains weak, as inferred from the levelling off of concluded house sales. Even so, demand for houses remains heterogeneous.
Demand for apartments shrank by 63 percent, while demand for bungalows and maisonettes expanded by 9 percent
and 72 percent, respectively.
The relatively stronger demand at the top end of the market more than offset the decline in the lower segment, hence providing support for the house price stability that the KBA-HPI reports.
Housing price fundamentals, just like prices of non-house goods, substantially depend on the state of the economy.
“Further, and as we have argued before, during periods of a sharp contraction in economic activity house prices either remain flat or decline slightly,” KBA says in the report.
The fact that the decline is not as sharp is attributable to the slow response of both buyers and sellers in response to the declining economic prospects.
This provides the cushioning to house prices, hence their stable levels. It is noteworthy that the supply side weaknesses continue to reveal themselves in indicators such as cement production and consumption.