15 August 2012

Kenya: Home Builders Shift Focus to Cash Buyers

Home builders initially targeting the middle-income market have turned to cash buyers as high mortgage rates lock out potential buyers in the market segment.

The property developers are wooing high-income earners and Kenyans in the diaspora for buy-to-let investments, with the hope of moving the stock to offset outstanding loans and free up capital.

When banks adjusted mortgage rates upward early 2012, many prospective middle-income home buyers, who primarily rely on mortgage financing, shelved their plans with some opting to continue renting. "There has been a bit of slowdown on mortgages as many prospective buyers put a hold on their plans, while some were hoping prices would come down... but they haven't," said George Laboso, head of mortgage sales at Family Bank.

Home builders whose stock hit market in the last eight months have taken the short-term alternative of wooing cash buyers at the risk of lower profit margins. "If somebody has cash they get better prices since developers are tempted, faced with two situations: of getting stuck with loan repayments or selling to cash buyers at discounts," said Laboso.

Terry Mungai, proprietor of Temus Holdings, recently completed construction of four apartment blocks in Ruaka, Temus Court, and says sales to cash buyers are coming through although she had initially targeted mortgage buyers. She said sales are being driven by both owner-occupier and buy-to-let as cash buyers swing to capitalise on ready market for rentals from the diplomatic workforce at UN agencies and embassies around, and bankers and hospital workers at two top hospitals in the thriving Gigiri commercial hub.

The 32 units of two- and three-bedroom sit on three quarters of an acre and are priced at Sh6.5 million and Sh7.5 million respectively. Buy-to-let owners can expect monthly rents of up to Sh35,000 for the 2-bedroom units and Sh40,000 for the 3-bedroom units. "The houses are also quite attractive for second home buyers and company housing schemes," said Mungai.

She said a number of mortgage buyers who had expressed interest in the houses pulled out when rates went up, leaving her to focus on cash buyers who have so far snapped up almost all the 3-bedroom units. However, it is still a seller's market as the stock of new-build offloaded into the market in the last eight months has been minimal though cash buyers can squeeze bargains. "The shift isn't that huge. The Kenyan market has largely been driven by mortgage buyers in the last 10 years and can't be sustained by cash buyers," said Laboso.

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