The property market is showing signs of cooling off with house prices only rising marginally in the second quarter of the year as lending rates rise.
The Kenya Bankers Association (KBA) Housing Price Index, which measures the average home prices, increased by 0.2 per cent in the second quarter of the year, slower than the 2.75 per cent increase in the first three months of 2015.
KBA director of research and policy Jared Osoro said the slowdown in the housing market is a reflection of the general economy now feeling the pinch of rising lending rates and inflation, amidst tight liquidity.
“The broader performance of the economy is trickling into the housing market,” said Mr Osoro.
The Kenya Bureau of Statistics is yet to publish second quarter GDP numbers but between April and June this year the Central Bank of Kenya (CBK) increased the base rate to 10 per cent from 8.5 per cent.
Last month the CBK raised the base rate to 11.5 per cent. The Kenya Banks’ Reference Rate (KBRR) rose to 9.87 from 8.54 per cent, setting the stage for further lending rate increases.
READ: Borrowers to feel pinch as CBK raises lending rates
The CBK increased the rates, for the first time since 2011, to prop up the shilling which is now trading above the Sh100 level, a three-year low.
The KBA Housing Price Index shows the fear that interest rates will rise is delaying potential home buyers from taking up mortgages.
“This has apparently shaped the decision-making of households of seeking to take mortgages (that account for a small portion of home buys) towards home acquisition.
“Indeed the financial performance of key mortgage lenders reflects stable earnings for the first half of the year, confirming the influence of demand on the softening of house prices.”
Listed mortgage lender Housing Finance reported a half-year net profit of Sh485.14 million, a 2.2 per cent increase from Sh474.4 million posted a similar period a year earlier.
Housing Finance said the lacklustre performance was the result of slow sales in the first half of 2015. Analysts expect the slow uptake of home loans to continue throughout the year in light of rising interest rates.
“Following the current interest rate scenario in the country, the mortgage market may be dampened by the increased lending rates. As such, we expect to see a slower growth from the bank going forward,” said a market report by Cytonn Investments.
The KBA Housing Price Index showed that the low-income real estate market, where houses are priced at below Sh10 million, is the most affected since most developers here are putting up rental units and not houses for sale.
Mr Osoro said the most active market is the middle income market where most mortgages are going towards buying apartments. Apartments and bungalows in the market segment are priced at between Sh10 and Sh20 million.
For the high end market buyers are going to suburbs where they can find houses on ample parcels which can then be pulled down and in their place apartments put up.