Kenya: Real Estate to Grow At a Slower Rate

Real estate activity in kenya is set for slower growth in coming months as financing constraints hurt the supply side.

Analysts say the currently high interest rates have had the most impact on developers who are now faced with an increasingly hesitant flock of potential buyers.

The already suppressed supply means rental prices will continue rising as demand for the available stock gathers pace. "Almost all developers have slowed building, postponed phases, or reduced the number of homes they are currently constructing," said Farhana Hassanali, the property development manager at HassConsult, on Wednesday.

"Most middle income housing developers rely on construction finance they can't access this now - this segment will most likely suffer," she said. House sellers however remain bullish and are raising the asking prices in bid to recoup their own higher costs in land, construction materials and financing.

"Inflationary pressure has also meant that bargain hunters have had no effect on prices because sellers are seeking higher prices to absorb high costs. Properties are not being discounted and sales have of course slowed down," said Nathan Luesby, managing director for real estate website Jenga Web.

Buyers are however unresponsive to the higher prices in the hope that prices will fall, widening the gap between asking and closing prices. The Hass Property Index for first quarter showed closing prices in the middle and upper market fell slightly by 0.7 per cent, while asking prices rose by 1.3 per cent on average.

HassConsult now forecasts continuing flat prices in the next 6-12 months. However, prices are expected to rise shortly after as there will be more people fighting for the limited stock that will be offloaded in the market.

"The impact is not visible currently to the rest of the economy but will be felt in coming months due to a slow down in supply of new-build," said Jenny Luesby, a consultant for the quarterly index.

Buy-to-let has become an attractive investment class as pent-up demand pushes up prices for rentals. Home buyers have kept away from mortgage loans as they fear the loan-to-value ratio may become slop-sided owing to current high interest rates ranging up to 28 per cent for direct home purchase.

The construction sector began experiencing slow growth in the last quarter of 2011. Data from the Kenya National Bureau of Statistics (Knbs) showed the quantity of cement produced declined by 0.6 per cent from 327,343 metric tonnes (MT) in November to 325,408 MT in December, while consumption fell by 3.6 per cent from 290,413 MT to 280,071 MT in the same period.

The value of building plans approved by the City Council of Nairobi for residential construction fell to Sh12.5 billion in December 2011 from a high of Sh16 billion recorded earlier in July.

Source: http://allafrica.com/stories/201204190280.html