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Interest rates law drags house prices movement

Anxiety over how the interest rates capping law would affect lenders and customers dragged down the growth of housing prices, Kenya Bankers Association (KBA) chief executive Habil Olaka has said.

Speaking during the release of the KBA Housing Price Index, Olaka said the drop in the rate of price increase could be a reaction to the law that came into force in September 2016. “We see traces of the effect of the law in this quarter’s house price movement.

During the last three months to the end of the year, banks were more particular in the approvals. Customers on their part depicted a somewhat reluctant stance, approaching any long-term borrowing with a wait-and-see attitude,” he said.

Demand for houses dropped in the last quarter of 2016, pushing down the growth of home prices, according to the index published quarterly by KBA. By close of the year, prices were growing at a rate of 1.58 per cent compared to the previous quarter when they grew by 2.2 per cent.

The growth was attributed to the increase in the prices of apartments as the prices of maisonettes and bungalows remained relatively stable, said KBA. “Apartments accounted for 60 per cent of housing units sold during the quarter compared to 23 per cent and 17 per cent for maisonettes and bungalows respectively,” said KBA is a briefing note.

KBA director of research and policy Jared Osoro said the middle and upper end of the market dominated activities in the housing market. “For the given housing units supply conditions in the market, the adjustment revealed itself on the demand side as lenders commenced revising the credit standards prior to approving mortgage lending.

In essence, there was a slowdown in mortgage approvals during the quarter, hence the constrained demand,” he said. Osoro said the upcoming elections are not likely to affect the housing market.

“People do not hold long-term investment plans because of short-term events. In the case of the upcoming elections, we anticipate that short-term investment decisions will be withheld but not investment decisions on housing, which are long-term in nature,” he said.

However, data from Central Bank of Kenya (CBK) shows there has been general decline in lending growth since the second quarter of 2016—long before the interest rate capping law was implemented. CBK has said in past events that it is working with the Kenya National Bureau of Statistics to establish the cause of the slowdown.

Olaka projected a surge in residential construction activity in 2017. “Our anticipation is that a number of facilities that were pending approval will have been completed and developers will seek to bring to market the on-going housing projects,” he said.

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