House prices rise as lower mortgage rates fuel demand

Money Markets

Hass Consult research and marketing manager Sakina Hassanali (left) and Jenny Luesby, Africa Laughter managing director, during the release of the Hass Index Report for the third quarter of 2014 in Nairobi Oct 22. PHOTO | SALATON NJAU  

By JOHN GACHIRI

In Summary

• Hass Property Index shows that the average sale prices increased by 3.1 per cent in the third quarter of 2014 against 1.5 per cent in the same quarter of 2013.
• The average price change for all types of middle and high-end houses since the beginning of the year is 4.7 per cent against three per cent in 2013.

House prices have begun rising as the market feels the delayed side-effects of high-interest rates three years ago which slowed down supply, says Hass Consult.

The real-estate consultancy’s Hass Property Index shows that the average sale prices increased by 3.1 per cent in the third quarter of 2014 against 1.5 per cent in the same quarter of 2013.

The average price change for all types of middle and high-end houses since the beginning of the year is 4.7 per cent against three per cent in 2013.

Head of research and marketing Sakina Hassanali said the high-rates regime in late 2011 and 2012 forced developers to shelve plans for housing units that would have come to the market this year.

The high cost of money made some buyers postpone decisions but demand by these buyers is back as some have increased incomes over the period against a market with reduced delivery.

“It now seems that our market is moving into a renewed upswing, which we also predicted, based on the slowdown in new buildings that struck with the interest rates of 2011 and 2012. There was a time-lag in the impact,” said Ms Hassanali.

The Central Bank of Kenya (CBK) increased its base-lending rate to 18 per cent from six per cent in December 2011 to tame runaway inflation and to strengthen the Shilling.

High cost of loans resulted in falling sale prices as buyers found it expensive to access credit to buy houses, with average interest rates moving above the 20 per cent mark.

“This top end of the market was the most affected, as buyers continued to experience financial pressures and with new cash for non-mortgaged purchasing also showing signs of slowdown,” said Hass Consult around the same time in 2013.

READ: Ruto says lenders agreed to cut mortgage rates

The base rate has now gone down to 8.5 per cent and the average lending rate is 16.04 per cent. Other property players said prices have risen due to high demand but added that the situation is not uniform.

Acorn Group chief executive Edward Kirathe said there has been a slight increase in the high-end market which is still attractive due to growing demand from staff working in multinational corporations. The biggest demand he said is for the mid- and lower-middle markets.

“With respect to the middle and lower middle segments, demand is still quite high with uptake only dropping in certain areas like Mlolongo where developers have over supplied. In this segments, we expect demand to remain strong,” Mr Kirathe told the Business Daily.

William Kabue, the managing director of property agent Certiorari, said apartment prices are now between Sh7 and Sh24 million, a slight increase from Sh7 million to Sh21 million in 2013.

Hass Consult says there is preference for apartments over detached houses especially in Nairobi County where 90 per cent of permit applications are for the blocks.
 

According to Ms Hassanali, the attraction of apartments to developers is the higher yields since more units can be put up on a smaller piece of land.

Average apartment prices have increased by six per cent since the beginning of the year, nearly two times the 3.3 per cent increase for detached houses.

Hass uses up to 6,000 property prices a quarter, sourcing data from sales agents, property magazines and publicly available documents.