Bankers link slower rise in house prices to interest rate caps

House prices rose at a slower rate in the final quarter of 2016 compared to the preceding period due to economic slowdown and a decline of sales in the wake of poor credit uptake.

The Kenya Bankers Association (KBA) housing price index shows house prices rose by 1.58 per cent compared to the third quarter’s 2.2 per cent.

On Wednesday, KBA chief executive officer Habil Olaka linked the slowdown in house price movements to “traces of the effect of the rate capping law.”

The bankers’ lobby is fiercely opposed to the Banking (Amendment) Act 2016 that came into force on September 14, introducing legal caps on interest rates.

Some analysts had, following the coming into effect of the law, predicted that it would trigger increased uptake of mortgages.

“The number of housing units whose sale was concluded during the quarter were lower than those of the previous quarters,” said Mr Olaka.

According to Jared Osoro, the director of research and policy at KBA, the mild price increase albeit at a slower rate than that in the previous quarter could be directly linked to the rate control.

“Whereas the general trend in house prices has been positive, the mild dipping in its rate of increase during the fourth quarter  was a reflection of the market adjustment in response to the new market dispensation on the back of the new banking law,” he said.

Mr Osoro, however, noted house prices have increased by 14.91 per cent since the first quarter of 2013, the base period for the KBA house price index.

KBA, going forward though, projects a spike in construction sector activity.

“We expect a surge in residential construction activity as the financial sector adjusts to the new pricing regime,” said Mr Olaka.

“Our anticipation is that a number of facilities that were pending approval will have been completed and developers will seek to bring to market the ongoing housing projects.”

READ: Interest rate cap fails to trigger mortgage uptake, owning land

The report says apartments accounted for about 60 per cent of the units sold during the quarter compared to 23 per cent and 17 per cent for maisonettes and bungalows respectively.

“Apartments have a shared sense of communal housing and this has proved a preference for the urban middle class. They also have amenities like malls which are seen to be prioritised by the middle class,” said Mr Osoro.

Core housing attributes influencing buyer demand, according to the report, continue to be the size of the house as revealed by the plinth area, number of bedrooms and their specifications, bathrooms, presence of detached servants quarter, parking and availability of resources like related investments including a borehole.

The report says developers are keen to continue supplying the middle and high end of Kenya’s housing market where returns are seen to be high.

“Evidently the market reflected dominance of market activity of the middle and upper end of market than the lower end as supply remained aligned to that segment and the severity of the demand constraints,” said the report.

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