Softening House Prices on the Back of New Pricing Law
Nairobi, February 1st 2017The average house prices in Kenya increased by 1.58 per cent in quarter four 2016, compared to 2.2 per cent rise recorded in the previous quarter, according to the Kenya Bankers Association - Housing Price Index (KBA-HPI). The up surge revealed the sustenance of the mild price increase, albeit at a slower rate than the previous quarter.
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 new banking law that capped interest rates coming into effect. Like the previous quarters, the core house attributes influencing the prices were: The size of the house (as measured by plinth area, number of bedroom, bathroom, and presence of domestic staff quarter); Whether or not the house is located in a gated community (which comes with superior ambience environment, controlled development, security, privacy and scenic value); Proximity to social amenities such as shopping malls, tarmacked roads, schools, hospitals and presence of parking lot; and Availability of resources such as water or such related investments such as the presence of a borehole. Even with these developments, the KBA-HPI reveals general stability both in the rate of price movements as well as the underlying price drivers. The house prices have increased by 14.91 percent since the first quarter of 2013, the base period for the KBA-HPI.
A breakdown of the index by house type indicates that apartments accounted for the largest share of the total sale transaction at 60 per cent with maisonettes and bungalows accounting for 23 per cent and 17 per cent respectively. Accordingly, the price of the apartments drove the price movements as the other types of houses were characterised by relative price stability. According to KBA Director of Research and Policy, Jared Osoro, the market reflected dominance of market activity of the middle and upper end of the market than the lower end as supply remained aligned to that segment and the severity of the demand constraints arising from the financial sector realignment to the new banking law which seems to be higher on the lower end. "For the given housing units supply conditions in the market, the adjustment revealed itself on the demand side as lenders commenced revising the credit standards prior to approving mortgage lending. In essence, there was a slowdown in mortgage approvals during the quarter hence constrained demand", said Mr. Osoro.
Nevertheless, KBA anticipates a pick-up in building activity in the subsequent quarters. "Going forward we expect a surge in residential construction activity as the financial sector adjusts the new pricing regime. 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 on-going housing projects", said KBA CEO, Habil Olaka.
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Note to Editors:
To better guide policy makers and investors on the trends in the housing sector, the banking industry's umbrella body, the KBA, launched the KBA-HPI in February 2015. The Index has quickly been recognised as a credible analytical tool that is useful for tracking housing sector dynamics and price movements. The Kenya Bankers Association Housing Price Index follows the Laspeyers Index method where the index is computed by getting the ratio the estimated current quarter price from the hedonic method multiplied the weights of the preceding quarter to the price of the preceding quarter multiplied by the respective weights of that quarter. The weights of the quantitative variables are obtained by getting their respective mean values. For the dummy variables however, their weights are computed as the proportions of the number of houses possessing a certain attribute to the total number of houses.
The KBA-HPI regions are based on clustered price ranges across several counties as follows: