The Kenyan housing market remained subdued during the six months' period to June 30 as falling household income coupled with diminishing credit from commercial banks reduced demand for houses and stifled developers' efforts to put up new units, a survey by the Kenya Bankers Association (KBA) says.
KBA's latest Housing Price Index report released last week shows that house prices remained subdued for the second consecutive quarter, registering a 1.72 per cent decline between April and June, with the lower-income segments being the hardest hit.
During the first quarter this year, house prices fell by 2.78 percent.
According to the KBA, weak household income has been a key factor in keeping the demand for homes low and the situation has been exacerbated by limited funding to the housing market due to increased non-performing loans particularly in the construction sector.
KBA said challenges facing prospective home buyers include squeezed household budgets as a result of rising inflation, difficulties in getting credit and the cautionary attitude of many households due to difficult economic conditions.
According to CBK, lenders have introduced tighter credit standards that have put off many borrowers from the mortgage market who show a preference for short-term loans compared with long tenure mortgage loans
As a result, households have been unable to purchase houses while developers have not been able to put up new buildings due to limited funding.
According to the KBA survey, the number of building approvals fell to 2,238 for the period July to November last year from 2,252 between January and June the same year.
However, of the total units offered during the second quarter flats sustained their dominance at 81 per cent, underscoring the influence of the middle-income segment of the population on the market.
They were followed by maisonettes and bungalows at 13 per cent and 6 per cent, respectively.
According to the survey, the increasing prominence of apartments is an indication that land pressures have pushed developers to building flats to maximise space utilisation.
"The continued dominance of the flats in the housing market is a clear demonstration of the predominance of the middle-income segment of the population. From a developer's perspective, this outlook is one way of dealing with the pressure of land prices and hence the need to build further upwards," said KBA.
According to the survey, maisonettes' market share declined to 12.9 per cent in the second quarter from 23.4 per cent in quarter one while the share of bungalows declined to 5.9 per cent from 14 per cent during the same period.
In June, listed mortgage financier HF Group said it had been forced to review its home loan business with a focus on the mass market after dropping into loss making territory largely due to increasing volumes of NPLs and lower interest income on existing loan facilities as a result of the rate caps.
The firm is now focusing on giving out small ticket mortgages of between Ksh4 million ($40,000) and Ksh5 million ($50,000).
"We are now focusing on the mass market really because that is where we have the demand for mortgages," said Robert Kibaara, the firm's chief executive.
According to Cytonn Investments Ltd Kenya's high-end housing market recorded a 1.5 per cent decline in the prices of houses during the three months' period to March 31 this year as a result of a drop in selling prices in markets such as Nairobi's Kitisuru and Lower Kabete as developers attempted to attract buyers.
However, the lower mid-end market registered the highest average returns of 2.7 per cent compared with the high end and upper mid-end markets, which posted 1.9 per cent and 1.7 per cent in the same period respectively.
According to analyst at Cytonn Investments the shrinking demand for houses in the top end of the market is as a result of high cost of financing and relatively low mortgage affordability in the market.