Property Market Recovery Slows Rate of Decline in House Prices
Thursday 24th May, 2018 - The cost of houses increased during the first quarter of 2018, marking the first price uptick in the property market since the last quarter of 2016. According to the Kenya Bankers Association's House Price Index (KBA-HPI), house prices went up by 2.08 percent compared to the growth rate of 0.69 percent recorded in the last quarter of 2017, with a shift in market activity towards the middle segments.
Since the fourth quarter of 2016, the rate of increase in house prices has been on a downward trend due to depressed market conditions attributed to shrinking private sector credit growth and political instability witnessed after the 2017 general elections. The survey notes that the previous growth rate of above 1 percent in 2016 would have been sustained in the absence of adverse private sector credit shocks that were experienced in the quarter under evaluation.
Although the findings sound as a reprieve to property owners, the report indicates that while the growth in the first quarter of 2018 implies property market recovery, the rise should be treated with caution as it could be associated with transactions from previous quarters that had been put on hold due to market anxiety and lower risk appetite on the part of lenders due to the Banking (Amendment) Act, 2016. This influenced potential buyers' decisions to withhold home ownership investments.
"This improvement in prices should be viewed with caution since a one-quarter increase would be inadequate to objectively asses the market recovery. Results in the subsequent quarters during 2018 will, therefore, be critical in arriving at a solid conclusion," says the survey.
The review adds that while house price drivers remained largely unchanged, supply-demand dynamics continued to influence the property market, with the demand end of the market remaining active and the previous quarter's housing stock driving the period's supply.
"The overall index by type of house shows that in the First Quarter of 2018, maisonettes and bungalows accounted for the largest share of houses put on sale as opposed to previous quarters where apartments took the lead," says the KBA index.
Potential home owners also appeared to trade-off the value that comes with the swimming pool, elevator and backup generator mainly in the gated community residence, partly due to additional service charges attached to such amenities. In addition, home buyers seemed to forgo the value of balcony, guest room, separate dining area, and Domestic Staff Quarters (DSQ), highlighting buyer preferences influenced by the desire to fully utilize spaces.
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.