House prices in Kenya showing signs of slowdown
House prices in the residential property sector have began showing signs of receding after a long bullish run, the latest Hass residential property indices show.
HassConsult, the real estate firm which releases the only property market report in the country, said house prices fell in real terms between April and June. This resulted from a cooling down in the asking prices in the period, with an average rise of 1.9 per cent across all types of residential properties. The firm attributed the conservative increase in asking prices to buyers becoming more selective, with some holding off from purchasing as they searched for bargain buys. Most buyers were also noted to be unwilling to pay higher prices.
Asking prices for stand-alone houses rose by just 1.5 per cent in the three months, while those for townhouses and apartments rose by 2.9 per cent and 2.0 per cent respectively.
With buyers becoming more prudent and sellers now having more measured expectations, properties took longer to sell and prices aren’t expected to go up. “Although there continues to be a pipeline of buyers, we are no longer seeing the kind of pent-up demand necessary to keep pushing prices significantly higher,” said Farhana Hassanali, the firm’s property development manager. “The market is currently able to absorb the new build, normally within weeks … but we are seeing little evidence of buyers upping their offer prices to secure properties they are in danger of losing to competing buyers.”
This has been attributed to buyers being more cautious, holding their cards as they hunt for bargains. In the first quarter, the gap between asking and closing prices for apartments and maisonettes was reporter to be widening owing to ambitious pricing by developers – to which the solid market proved unresponsive and unwilling to support.
HassConsult had warned earlier that the soaring land prices in and around urban areas spelt trouble for the country’s real estate market. The increasing densities were deterring buyers from making the move owing to the price gap, leaving developers to find ways to cover for the astronomical land prices while building properties that would sell.
Property values in the country have more than tripled since year 2000, but the market now seems to have embarked on a correctional mode. The drop in closing prices for houses is expected to create a potential disruption to construction activity as it represents a more unstable situation, coupled with rising inflation and weak shilling which have seen prices of building materials soar.
Some developers have been pushed to revisit sale agreements to seek higher prices for units sold off-plan as high costs eat into profit margins, but buyers are unwilling to commit for fresh higher prices unless completion rests on the extra payment. “There’s some time-lag on developers being impacted by rising oil prices, and in building materials, but we are seeing a growing number of developers are approaching buyers for higher prices, because their profits have been eroded or now completely removed,” said Hassanali. “The net impact of this is that there is potential for slow down. Developers however need to seek more innovative ways to get their stocks moving,” said Jenny Luesby, a consultant for the property index. “They may, for instance, have to settle for less profits on bigger volumes.”