Political Environment, Rate Capes see house prices register the lowest growth rate in three years

The latest KBA Housing Price Index shows that there was a 0.42 per cent increase overall in house prices between –quarter three of 2017, down from 0.98- per cent the previous quarter.

Nairobi, November 3rd 2017 – Overall house prices in Kenya for the third quarter of – 2017 posted the lowest rate of growth registered in the last three years, on the backdrop of the current political environment and slowed private sector credit, a new banking industry report shows.

The latest Housing Price Index released by the Kenya Bankers Association shows that there was a 0.42 per cent increase – in overall house prices between July, August and September.

This was a reduction from the previous quarter’s 0.98 per cent growth and the lowest price increment posted since the third quarter of 2015.

“This is an indication that there is no- relief for the declining trend in the rate of house prices increase since the third quarter of 2015,” the report reads in part.


For the last year, housing prices have been on a declining curve with increase in prices dropping from a high of 2.20 per cent as at the third quarter of 2016 and falling to 1.58 per cent in the fourth quarter of the same year.


This declining trend piqued in the first quarter of this year (between January and March) with prices increase falling to 1.10 per cent, then dropping further to 0.98 per cent in the April-June period of this year, and then sliding further to the current rate of 0.42 per cent.


According to the KBA Director of Research and Policy Jared Osoro, the trend on growth in house prices mirrors that of credit growth to the private sector. Credit growth has slowed down this year as a result of introduction of – law capping interest rates which has further worsened the already declining credit to private sector prior to its introduction and thus discouraged banks from lending to the private sector.


“With the generally depressed demand in the economy and the slowdown in credit expansion, households relying on the credit market towards home acquisition have been adversely affected,” Osoro said “This has consequently influenced the house prices trend.”


In addition, the survey noted that the sluggish demand environment has provided little incentive for increased supply of housing units, a situation that is compounded by the constrained supply of financing.


Further, the political environment seems to be affecting both sides of the market. On the demand side, potential home buyers seem to be holding back on decisions to invest in home ownership while on the supply side, investors in the real estate could also be on a wait and see mode.


In terms of the house types, during the period under review, apartments took the upper-hand with the total number of units offered in the market. Apartments accounted for 82.66 per cent of the total number of units sold in Q3 of 2017 with maisonettes and bungalows accounting for 10.70 per cent and 6.64 per cent respectively.


Across all the market segments (lower, middle and upper), prices of apartments registered the highest rise compared to prices of bungalows and maisonettes, with the rise in prices in the latter two segments being more or less muted, the survey noted.


“The rise in the price of apartments compared to bungalows and maisonettes signals an element of the search for affordability by potential home buyers given the lower cost of construction per unit on the developers’ side and therefore relatively low offer process,” said Osoro. “As a consequence, market activity appears to be skewed towards the lower end compared to the middle and the upper market segment.


The survey further noted that the house price drivers in this quarter remained largely unchanged compared the previous quarters with the size of the house as captured by plinth area of the house, number of bedrooms, presence of backyard, master ensuite and gym area being among the core drivers of house prices during the quarter.


“During the quarter, the type of the house was core in influencing the house prices during the quarter,” the survey reads in part. “This speaks to the difference in the interests of the various potential home buyers which would be informed by the income levels as well as the family size.”


As a result, attributes such as presence of a swimming pool, proximity to basic social amenities, gated community, borehole for consistent water supply and presence of power backup generator significantly moved prices during quarter 3 of 2017.


KBA’s CEO Dr Habil Olaka commented that the survey reflects the current political climate and shrinking credit to private sector, saying “given the current political uncertainty in Kenya and the slow down we’ve seen in private sector credit, in part due to the interest rate cap it is perhaps not surprising that we have hit the biggest slowdown since 2015.”