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Residential House Prices Stabilises as Demand Softens

Nairobi, May 4th 2017 - The average house prices in Kenya increased marginally by 1.10 per cent during the first quarter of 2017 compared to the 1.58 per cent rise during the last quarter of 2016 according to the Kenya Bankers Association - Housing Price Index (KBA-HPI). Whereas this supports the observation that house prices are broadly stable, it is increasingly becoming evident that prices are softening.

Residential property prices rose slightly against a supressed demand due to reduced lending by commercial banks following the enactment of interest capping law in the last quarter of 2016.

According to KBA Director of Research and Policy, Jared Osoro, the house prices evolution since the third quarter of 2016 represents a downward trend, being a reversal of the rising trend that prevailed from the preceding three quarters starting from the last quarter of 2015. "Whereas the supply and demand dynamics have had an equal influence on the house prices trend, the key driver of the softening seen during the first quarter of 2017 and the preceding two quarters lean more towards market demand conditions," said Mr. Osoro.

Consistent with the previous quarter, the size of the unit was key price driver; this can be inferred from the demand that was influenced to a significant extent by the number of bedrooms, bathrooms, presence of backyard, garage / parking lot, master ensuite, balcony and separate dining area were among the core drivers of house prices during the quarter. However, unlike in the other quarters, presence of Domestic Servant Quarters (DSQ) seems to have been insignificant in determining the price, implying that potential home owners are less inclined to using the DSQ as an additional bedroom or as rentable accommodation.

A breakdown of the index by house type indicates that apartments accounted for 75.72 per cent of the total number of units sold in Q1 of 2017 with maisonettes and bungalows accounting for 16.46 per cent and 7.82 per cent respectively. Across the market segments (Lower, middle and upper market segments) prices of apartments registered the highest rise compared to prices of bungalows and maisonettes. The modest price of apartments indicates an element of affordability to potential home buyers given the lower cost of construction per unit on the developers' side, and more supply of units in the lower segment given the availability of land compared to the upper market segment.

KBA CEO Habil Olaka observed that the depressed credit market has been an impediment to the development of the housing market particularly for lower income households. He also challenged the developers to develop low costing units for the lower end of the market. "Credit plays a significant role in the growth of the housing sector, it is therefore imperative to remove all the lending and borrowing constraints to enable more activity amongst the middle and lower market segment," said KBA CEO, Habil Olaka.

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:

  • Region 1: Athi River, Mlolongo, Mavoko, Nakuru, Ngong, Ruaka, Syokimau, Embakasi, Kahawa Wendani, Thika, Mtwapa, Utange, Kitengela, Kiembeni, Nyeri, Likoni, Eldoret, Ruiru, Kilifi,Thika road (Kasarani, Roysambu, Ruaraka), Meru, Bungoma.
  • Region 2: Thindigua (Kiambu Road), Kiambu, South B, South C, Kabete, Komarock, Imara Daima, Membley, Buruburu, Rongai, Waiyaki Way (Uthiru, Regen, Kinoo, Kikuyu), Mbagathi road, Ngong Road, Langata.
  • Region 3: Kileleshwa, Kilimani, Lavington, Westlands, Spring Valley, Riverside, Milimani (Kisumu), Milimani (Nakuru), Runda, Karen, Garden Estate, Parklands, Ridgeways, Muthaiga, Loresho, Kitisuru, Adams Arcade, Nyali, Mountain View, Nyari.
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