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The Hass Property Index 4th Quarter 2011 -Kenyan middle classes shift to cheaper housing in static property market

The shift comes against a backdrop of squeezed household budgets on inflationary pressures and near static pricing in housing.

However, prices rises continue in some areas of the housing market as developers move to recoup higher construction costs.

Overall, asking prices for houses fell by 0.7 per cent in the fourth quarter,

compared with prices from July to September 2011. But the falls were confined to pricing for standalone housing, which fell by 1.8 per cent, with asking prices rising by 1.0 per cent for town houses and 1.4 per cent for apartments from October to December.

The Hass index of closing prices, based on sales made and concentrated at the top of the market, likewise confirmed some price erosion at the very top of the market, with closing prices down by 1.3 per cent in the final quarter of last year, compared with the third quarter.
“The middle market continues to ask and achieve higher sales prices, as developers recoup the extra costs of land and construction materials in a market where demand remains solid. But at the very top of the market, for villas and standalone houses, there is currently no buyer appetite for further price rises, and sometimes stiff negotiations on closures that are dampening prices marginally,” said Ms Hassanali.

However, the softening in standalone house prices in the final quarter of the year was accompanied by rising rents in the same section of the market, highlighting heightened interest in renting standalone housing at the same time as demand for buying similar villas and bungalows abates.
At the same time, rental prices continued to fall for town houses, as consumers opted instead to rent cheaper apartments. But town house sales benefitted from ongoing demand, as buyers moved downmarket and bought townhouses instead of standalone villas and bungalows.
The apartments market was the main beneficiary from the move down the property ladder, with the asking prices for apartments rising by 1.4 per cent, and asking rentals by 2.1 per cent from October to December 2011.

“With few mortgage owners, and ongoing economic growth, we see no prospect for a collapse in house prices,” said Ms Hassanali. “Kenya isn’t yet oversupplied with housing, or seeing a slice of homeowners needing to sell because they cannot make loan repayments.”

However, HassConsult warned that developers were now under considerable financial pressure. With their profitability already eroded by the rising costs of land and construction materials, they took a serious blow in the second half of the year on rising interest rates.
“With cost over-runs, developers with construction underway are now finding it hard to refinance, and new finance is close to unavailable,” said Ms Hassanali.

This had seen almost all developers suspend future phases of building, and downsize current phases, and would certainly see some projects now suspended mid-build.