High rents and mortgages still stifling housing sector

Kenya’s property market was characterised by increased rents, a bullish mortgage rate and a slump-down in property asking prices, especially in the suburbs, in the last quarter of 2013.

The HassConsult Residential Price Index for the fourth quarter of 2013 indicates that rents went up in the final months of the year, thanks to an insatiable demand for rental houses compared with that for units for sale.

Ms Sakina Hassanali, the Head of Research and Marketing at HassConsult, said that the progression from renting to buying a house for the country’s expanding middle class has been blocked, for the third year running, by the country’s exceptionally high mortgage rates.

“Typical first-time buyers of apartments and low-end town houses continue to find mortgages unaffordable, creating a demand bulge in rentals,” she said.

This clustering saw rents for semi-detached houses rise sharply all year, with a 4.5 per cent increment in the fourth quarter over third-quarter levels, and 19.4 per cent over the previous year’s.

The final quarter also saw an increase in rents for apartments, which went up by 4.2 per cent over the previous quarter’s, although the increment for the year was 2.2 per cent. The sudden increments more than offset earlier declines in asking rents.

The average rent for a piece of property went up from Sh38,516 in December 2000 to Sh120,372 in December 2013. The average rent for a four- to six-bedroom property is Sh183,899 while that for a one- to three-bedroom property is Sh67,651.

Regarding sales, only the asking prices of townhouses rose by 0.6 per cent between October and December above the previous three months’ while the asking prices for detached houses and apartments fell by 1.3 per cent.

The average value for a piece of property rose from Sh7.1 million in December 2000 to Sh24.2 million in December 2013. The average value for a four- to six-bedroom property is currently Sh33.8 million, while that for a one- to three-bedroom one is Sh11.4 million.

“The failure of the mortgage market to provide a new route to home ownership is now shaping the Kenyan property market in a way that cannot be sustainable,” said Ms Hassanali. “Demand is bulging in rental properties, even as developers are being deterred from new construction by flat sales prices and rising construction costs. The sum is ever-higher rents in a population made up of landlords and tenants.”

And while presenting the Mortgage Report for the fourth quarter of 2013, Ms Caroline Kariuki, the managing director of The Mortgage Company, said that the promises of ‘narrowing spreads’ from Kenya’s mainstream mortgage lenders after the uncertainty of last year’s elections were yet to bear fruit in the fourth quarter of last year.

“Overall, the mortgage rates remained unchanged in the fourth quarter, at an average 16.89 per cent. But both Standard Chartered and CFC Stanbic ended their third quarter promotional offers. Barclays Bank also increased its rate from 14.9 per cent to 15.5 per cent, and CFC Stanbic from 13.5 per cent to 15.5 per cent,” said Ms Kariuki.

Consolidated Bank continued to have the most expensive mortgages at 19 per cent, followed closely by Equity Bank, Family Bank, Diamond Trust Bank and Chase Bank, all at 18 per cent. “With the Central Bank of Kenya rate stable at 8.5 per cent, the unusually wide spread on these bottom-end rates, at around 10 percentile points, reflects some lack of interest and funds for mortgage lending by these banks,” said Ms Kariuki. “They are being priced to reduce demand.”

The high pricing has continued to limit the uptake of mortgages, which has had a long impact on house pricing, as well as on investment in property.

“It is vital to understand that if we continue to step up the demand for housing with an underdeveloped mortgage market, the casualty, in the end, will be Kenya’s entire property market, possibly with an impact as severe as falling house prices,” she noted.

Ms Kariuki suggested that the market needed a radical shift to free up long-term funding for mortgages through the establishment of a secondary mortgage market because that is the only way Kenya will see a significant increase in mortgage uptake and home ownership.

“There has been much talk but very little action. Kenyans need a proactive response towards this end,’’ Ms Kariuki said.

“The financial industry, sadly, has made far fewer strides. In the last year, we have seen the first initiatives to offer promotional mortgages that open a window to home ownership that can transform a family’s life, and often only become known by word of mouth, and within tiny, well-informed circles, meaning many professionals miss out on these opportunities,” she added, noting that in the past year, there had been initiatives such as that by Housing Finance to offer mortgages worth 105 per cent of a property’s price, which does away with the need to raise a deposit, and also covers the costs that comes with other services.

“In these small steps we see the kind of innovation and development that we now sorely need in our mortgage industry — an industry that is still populated by many banks without substantial funds to lend for housing, sometimes offering more of a notional or imagined package than a driving business,” she said