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Covid-19 continues to weaken Kenya’s housing market

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The coronavirus pandemic continues to unsettle the Kenyan housing market, according to the latest industry watch by Kenya Bankers Association House Index (KBA-HPI).

Latest industry analysis shows that the rate of house prices growth in the third quarter of 2020 remained flattened registering a 0.08 percent contraction compared to the 0.20 percent reported in the second quarter of the year – with the dropped blamed on the pandemic which had a bearing on both the demand and supply.

“Housing price fundamentals, just like prices of non-house goods, substantially depend on the state of the economy. The precipitous softening of the economy and the attendant fall in consumption expenditure, the ensuing income uncertainty and low consumer sentiments induced by the COVID-19 pandemic is having adverse effects on the housing market. This effect is seen on both the demand and supply-side of the market,’’ noted the report by KBA-HPI released Monday.

During the period under review, demand remained weak with concluded house sales levelling off.

Even so, the report noted that the demand for houses offered diverse variations with the quarter-on-quarter changes in demand for apartments declining by 63 percent while demand for maisonettes and bungalows registering a growth of 72 percent and 9 percent, respectively.

The KBA-HPI, however, indicates that high demand for units within the top end of the market more than offset the decline in the lower segments, supporting house price stability.

“As we have argued before, during periods of a sharp contraction in economic activity house prices either remain flat or decline slightly. The fact that the decline is not as sharp is attributable to the slow response of both buyers and sellers in response to the declining economic prospects,’’ said Kenya Bankers Association Chief Executive Officer Habil Olaka.

The report further observes that homebuyers’ preferences continued to be dominated by apartments accounting for 43 percent of the concluded transactions during the quarter and concentrated in Region 1, an indication of buyers’ preference for affordable houses.

Industry experts had in April predicted that the real estate sector would be one of the sectors to get a hit this year on the back of the pandemic as well as last year’s radical move by the State.

“The deadly virus only rubbed salt in that wound,” said Joseph Njoroge, a director at Eden Park County Gardens.

In November last year, President Uhuru Kenyatta signed into law the Finance Bill 2019 after the bid to remove a cap on commercial lending rates was passed in Parliament in the same month following a quorum hitch, potentially boosting the flow of credit to the economy and return of expensive credit.

As a result, high-risk borrowers like individuals and small businesses were expected to face an increase in loan rates of up to three percentage points following the removal of the legal cap on commercial lending charges.

Following that decision, property market observers reckoned that the decision was bound to create an uncertain environment for local investors even though the banks had vowed not to raise loan rates arbitrarily as a result of the nod.

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