Home Real Estates Kenya’s property market booms amid growing bubble fears

Kenya’s property market booms amid growing bubble fears


Kenya’s property market has over the years experienced a fast rise in prices of both land and houses amid low sale of some segments like office space, leading to fears that the country is experiencing a bubble.

Those who believe in a real estate over-expansion point to phenomena including exorbitantly priced middle-income estates and the big inventory of unsold houses.

Economics lecturer Henry Wandera said that East African nation’s real estate industry is in a bubble that is inflating.

“Some four-bedroom houses in upper middle-income estates are currently being rented out at 1,500 dollars a month. How many people can afford that and for how long?” Wandera said.

“What are these prices based on? I can confidently say greed and speculation. The real estate sector is priced way above itself and these are signs of a bubble,” he said.

With a good number of malls having empty spaces and developers stuck with houses that they have not sold for over two years, Wandera said it may be just a matter of time before prices fall drastically.

Some analysts have dismissed the fear, noting that the sector, valued by the World Bank at about 9 billion U.S. dollars, is still experiencing strong market demand.

“The sector is experiencing the normal real estate cycles as a result of low supply and high demand. Real estate still presents an attractive opportunities for investors,” said Edwin Dande, the CEO of Cytonn, a Nairobi-based investment firm, on Wednesday.

According to Dande, a bubble is characterized by factors including more people taking debt, relaxed lending standards, high level of speculation and incredible rise in prices.

“In Kenya today, the key constraint is access to credit as the government is crowding out the private sector given the 2016 interests rate cap law. For instance, mortgage accounts were reported to have decreased by 1.5 percent by December 2016 to 24,085 from 24,458 the same period in 2015,” said Dande in a report by Cytonn.

The Kenyan government capped interest rates at 4 percent above the Central Bank rate, which currently stands at 10 percent.

However, instead of boosting access to credit, the move has prompted banks and mortgage firms to tighten their credit supply to the private sector, especially for long-term loans such as mortgages.

Dande said as evidenced by the slowdown in private sector credit growth, which stood at 2 percent in October compared to 4.6 percent in October 2016, and 19.5 percent in October 2015, there is no relaxed lending in Kenya especially in the property market.

Antony Kuyo, a real estate consultant with Avent Properties in Nairobi, also dismissed the bubble claim, though admitting that most developers are stuck with unsold houses.

“This year prices have remained a little static but this was only because of the lengthy electioneering period as many would-be buyers kept off the market due to the political uncertainty,” he said.

Kenya has a deficit of some 2 million housing units, with the National Housing Corporation estimating an annual demand of 200,000 units.

“The rapid population growth means demand outstrips supply. Kenya’s population continues to grow and urbanization rates are 4.4 percent, we can not therefore say there is a bubble yet more and more people have no place to stay,” Dande said.

Kenya’s property market is mainly supported by the middle-class population, which has continued to expand amid rising income. Data from the Kenya National Bureau of Statistics (KNBS) Economic Survey 2017 showed that wage earnings increased to 16 billion dollars in 2016, up from 14 billion dollars in 2015.

The country’s GDP, according to the KNBS, averaged at 5.1 percent for the last five years. In 2017, it is expected to average between 4.7 percent and 5.2 percent. Enditem

Source: Xinhua/NewsGhana.com.gh

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