Real estate slumps in Kenya due to high inflation

A new study accomplished by the Kenya Bankers Association has revealed that the housing market still remains depressed during the second quarter of 2019. The housing market in Kenya continued to remain subdued during the six months' period between January 1 and June 30, 2019 because falling household income coupled with diminishing credit from commercial banks reduced demand for houses and stifled developers' efforts to put up new units.

The Housing price index study revealed there was a fall of 1.72 percent (between April and June) in house prices change during the second quarter compared to 2.78 percent decline in the previous quarter.

The survey reports revealed that the lenders have introduced tighter credit standards that have put off many borrowers from the mortgage market that reflects a preference for short-term loans compared with long tenure mortgage loans. Consequently, the households were not able to buy houses while developers have not been able to put up new buildings due to limited funding, as reported by The East African.

Between January and June 2019, there were 2,252 approvals compared to 2,238 approvals for the period between July and November 2018. "This is an early sign of an emerging trend, considering that previous instances of negative prices have been followed by a correction in the subsequent quarter," the study claimed, Capital FM noted.

"First, weak household income continues to keep demand for housing tight. Second, even with slight up-tick in private sector credit growth during the first half of the year, home buyers remain constrained," the study further revealed. On the other hand, credit constrains that affected both the supply and demand side of the housing market has been a dominant influence on the price evolution. The survey revealed that 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.

Due to the rising inflation, it is quite difficult to get credit and cautionary attitude of many households due to difficult economic conditions, the Kenya Bankers Association revealed.

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