House prices tipped to rise on stable interest rates

House prices leapt 1.4 per cent in the first quarter of the year, compared to a 1.14 per cent rise in the last quarter of 2015 – demonstrating a reversal of the slight decline in the growth rate seen in the previous quarter.

Although more people are renting in 2016 compared to those building to sell, increased supply of houses has so far kept competition and rent prices in check, according to The Kenya Bankers Association Housing Price Index (KBA-HPI) report for Q1.

“While the market movement represents increase in house prices, it depicts sense of broad market stability given that such increases have been mild at best,” the report says.

And as the interest rates begin moving back to more “normal” levels, KBA’s Director of Research and Policy Jared Osoro said on Thursday during the report’s release that the move could spell modest growth for house prices in the coming months.

“The support of the financial and banking sectors towards home acquisition has been enabled by a generally stable macroeconomic environment – but don’t expect a drastic growth in the coming months,” he said while projecting the market’s likely outcome in the next three months.

When the cost of borrowing becomes more expensive, affordability decreases and prices have to fall or buyers will be priced out of the market – which could put pressure on home prices, according to KBA’s Chief executive Habil Olaka.

“Central Bank of Kenya has been on the tightening stance and with the rates now showing signs of stability, mortgages will certainly be more affordable for investors,” he said.

CBK had last month maintained its benchmark interest rate at 11.5 percent – a move that is expected to boost mortgage uptake among Kenya’s working class who aspire to own homes, but can’t afford them due to high prices and exorbitant lending rates.

On the other hand, Parliament is discussing amendments to the Finance Act – currently at the second stage which if passed would lead to interest rates cap and could see commercial banks charge rates up to a specified limit.

KBA-HPI analysis further revealed that the new units being put up in the market are mainly targeting the middle end of the market, with the lower end experiencing supply constraints – triggered by the tendency of developers inclining more towards renting than selling.

“This is a reflection of the alignment of developments to effective demand by the middle income population and this reflects the state of market leaning away from the low end where there is evident supply deficit, “said Osoro.

The report comes on the backdrop of a another survey released earlier in the month by HassConsult which in its Q1 2016 house price index, showed that asking rents in Nairobi had grown marginally by 1.5 per cent during the period – while house sales had grown 4.2 per cent which the report said was industry’s first double digit annual growth in five years.