The Star (Nairobi)

12 July 2012

Kenya: Central Bank Rate Cut Likely to Spur House Construction

Timing of Central Bank rate cuts will have the biggest impact on resumption of activity in house construction, real estate firm HassConsult has said. The firm said it hopes the decision by the Monetary Policy Committee to lower the base lending rate will be followed by further cuts to end the current lull in building.

High interest rates since the second half of 2011 have slowed house construction in the mid-income segment as builders were faced with higher financing costs - and refinancing failing to come through - while potential buyers shelved plans to purchase new homes owing to expensive mortgage financing. "The time that it'll take and the scale of resumption of activity will depend on the timing of rate cuts," said Farhana Hassanali, the firm's property development manager. "If it takes many more months to see a further cut, we are not likely to see much new real estate activity before mid-2013, for completion by 2015, and will have created a near two-year hole in building progress," she said when releasing the Hass Property Index for second quarter 2012.

The firm predicts that in the absence of a rapid correction, both rents and house prices will rise significantly going forward. The MPC on Thursday cut the rate by 1.5 per cent for the first time in eight months to 16.5 per cent from a historical high of 18 per cent set in December 2011 to ease inflationary pressure on the economy.

The Kenya National Bureau of Statistics data showed overall month-on-month inflation dropped to 10.05 per cent in June 2012 from a high of 19.72 per cent in November 2011. The sharp slowdown in house construction is expected to create a shortage of new-build as "the next wave of building has not begun", with the few projects underway coming to completion. The Hass house indices show asking prices for rents rose overall by 2.2 per cent in the second quarter, driven by higher demand as potential buyers delayed and opted for rented accommodation till a time when mortgage finance becomes affordable.

Asking prices for houses went up by 1.3 per cent in the period despite high mortgage rates, widening the gap with closing prices which rose only by 0.5 per cent. Houses prices are set to increase further as the impending shortage of new-build is expected to trigger intense competition for properties once affordability of mortgage finance improves. "At the moment it's harder to finance projects and harder to finance purchases particularly in the middle income market," said Nathan Luesby, a consultant for HassConsult.

Ads by Google

Copyright © 2012 The Star. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.