There will be growth areas, but these will be slowed down by stringent
legislation and taxes. Also, chamas are poised to give banks a run for
their money in the coming months.
Last year the property industry showed
signs of recovery after the high interest rates experienced in 2011 and
2012 negatively impacted on real estate development.
The
latest quarterly index report, conducted by real estate consulting firm
Hass Consult, shows that Kenya’s property market has improved thanks to
lower interest rates.
The last 20 or so months also
proved tough for the real estate industry as there was a decline in
demand for suburban housing, particularly from first-time buyers.
According
to the quarterly index by Hass Consult, the first quarter of 2014 saw
increased demand for high-end houses which revived a glimmer of hope for
growth in the real estate industry.
This year,
experts and stakeholders predict good returns for those who want to
invest in real estate. There has been divided opinion over the
‘real-estate bubble’ but most remain optimistic that 2015 will be the
year of recovery and stability.
Carol Kariuki, the
founder and Managing Director of the Mortgage Company, says real estate
investors have every reason to smile this year.
“We
will finally crack the funding dilemma by doing some securitisation,
which means we will get a lower cost of borrowing for all the people,
which will open up the market,” says Ms Kariuki.
Securitisation
will not only generate a new source of funds for real estate funding,
but also revitalise the real estate industry by opening the market to
first-time investors with limited funds.
For the
average Kenyan, investing in the property market means securing a plot
in the outskirts of Nairobi. These plots of land are either bought using
one’s savings or through pooling of resources from investment groups.
Buying to build
The
year 2015, specialists say, is the year those with a plot of land in
the outskirts of Nairobi will be looking to build and develop.
Improved
infrastructure to areas such as Ruiru, Rongai, Kitengela, Athi River,
Ruai and the like has increased motivation for those who would rather
live a few kilometers away from the hustle and bustle of the city.
“People
have invested in the outskirts of Nairobi and with better
infrastructure will not mind travelling a bit as long as they can have a
home they own and love. I am expecting that with better infrastructure
we will be able to see more home developments,” says Ms Kariuki.
Single-digit mortgages
Mortgage
rates in Kenya today fall between 11 per cent and 19 per cent. Last
year, Deputy President William Ruto said that the government was
negotiating with local banks to reduce the mortgage rates to single
digits in a bid to make home ownership affordable.
In a
market with roughly 30,000 mortgages, home ownership through mortgage
remains a mirage for many Kenyans. Many lower and middle income Kenyans
shy away from mortgages due to the high interest rates, exorbitant land
prices and equally expensive developer fees.
Whether mortgages will increase or decrease is solely dependent on banks.
“On
the mortgage side, it will depend on the banks... if they will reduce
their lending rates to see a much higher uptake of mortgages. If they
don’t we will remain at our 30,000 level,” says Ms Kariuki.
Frank
Ireri, Managing Director of Housing Finance, says the growth of the
real estate industry in 2015 will rest entirely on the country’s macro
economy.
“If the macro economy grows then the property
market will also grow. In 2014 we saw a bit of stagnation but again the
whole economy also stagnated. The real estate industry entirely depends
on the macro economy, it cannot operate in isolation,” says Ireri.
Ireri
links the high mortgage rates to high inflation rates, adding that the
buck stops with government in making home ownership possible for the
average Kenyan.
“The challenge we have in our market
today is the cost of money, starting with the government cost of
borrowing and high inflation rates that lead to high interest rates. It
is a macro issue that the government has to solve. If the government
reduces the cost of borrowing, we will reduce our lending rates,” says
Ireri.
The Kenya Banks’ Reference Rate (KBRR), launched
last year, is expected to provide a framework to guide mortgaging and
lending in the country. This attempt by government to reduce the cost of
borrowing is seen as a good move in growing mortgage assets in the
country.
The KBRR, which was set at 9.13 per cent, took
effect immediately. It will be reviewed every six months starting
January this year, and already Central Bank of Kenya has lowered it to
8.54 per cent, starting January 14.
Stakeholders
reckon that this will be a game changer for the real estate industry and
the dream of owning a home will soon become a reality.
Developers
like Sue Muraya, the Director of Suraya Property Group, hope that the
government’s effort to clean the land registry through digitisation of
the Ministry of Lands will finally pay off.
The
streamlining of the land transfer process at the ministry of lands will
be a big boost for developers and home owners because then the home
ownership process will be less tedious.
“Once you are
able to do your searches and registration on time you can transfer from
one buyer to another on time. The digitisation of titles, which means
you will be able to conduct a deed search in 24 hours, is a major
milestone for people in our industry,” says Ms Muraya.
But
perhaps Ms Muraya’s biggest expectation this year is that her clientele
will have significantly more knowledge and understanding of what’s
available in the market, so that people can make the right decisions
when it comes to home ownership.
As is the wish any developer, Ms Muraya hopes that the maladies ailing the mortgage market will be sorted out this year.
“We
are anticipating a drop in interest rates. Many people still don’t
understand what KBRR was all about, and so they must be educated on
what the rates regime means to them, particularly as borrowers who will
be affected directly by upward or downward reviews,” says Ms Muraya.
With
devolution and county governments in place, urbanisation in the
counties will go a notch higher. This means that a lot more people will
be happy to live within county headquarters that are now developing into
urban centers, Ms Kariuki points out.
Chamas are no
longer the social gatherings between women who collect money and give it
to one lucky member in a merry-go-round format.
They
have evolved into investment groups where members pool together their
resources to purchase large tracts of land for later sub-division.
Investment
groups such as Home Afrika have impressive portfolios in the real
estate industry, setting the pace for other like-minded groups.
Experts
advise Kenyans to join such groups because collective investments are
better than individual ones as the risks are shared, and it is also much
easier to spread the cost.
Chamas or investment
groups should be registered with the Kenya Association of Investment
Groups (KAIG) and the Amalgamated Chama Limited (ACL).
These
organisations provide avenues for investment groups to pool their
resources and see how best the monies collected can be invested for
maximum returns.
Saccos and the investment groups are the future of the real estate industry and are expected to make a huge impact in 2015.
“These
groups need to be motivated to take the next step in home ownership. I
see saccos and co-operatives playing a much larger role in home
ownership than even banks because co-operatives are offering the full
solution,” says Ms Kariuki.
Demystifying home
ownership, especially for first-time owners, remains the industry’s
biggest challenge. If it is not a pipe dream, it is considered a luxury
by many who have no idea where to start from.
This is the year when the discerning will finally enjoy a piece of the property pie.
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