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State housing projects set to push up construction costs

The government’s decision to construct a million houses over the next five years is likely to shake up the real estate market through stiff competition.

Department of Housing officials say the homes will be built by the government and through public-private partnerships to help reduce the estimated 1.85 million houses shortage in the country.

But stakeholders say if implemented, low- income earners will abandon the private real estate market for the cheaper government housing units. Private developers have been struggling to build affordable housing units through payment of houses using instalments and incorporating banks to enable their clients secure mortgages.

But they say they cannot lower the prices of their houses to the level of the government units due to increased land and construction costs.

“As real estate developers, we are focusing on the low-income earners as our target market. We are working in tandem with banks to ensure we enable our clients get affordable flexible mode of payment,’’ said Ken Kahara managing director of Moran Ridge Developers.

He said since the implementation of the 14 per cent tax to mortgages, mortgage uptake has declined. “The cost of a house unit is highly determined by land prices, which even in the interior parts of the country are high compared to public housing unit costs,’’ said Kahara.

A sudden influx of houses in the market in a short period will also increase demand for construction materials leading to price increase, further making construction more expensive.

While the segment may enjoy a large number of first-time home owners who opt to live in the units they purchase, a significant amount of the clientele consists of investors who purchase houses because of the good rental income.

“This segment is facing challenges due to the options in the market, forcing landlords to either lower rents prices or have vacant property for up to a year waiting for a tenant,” said Kihara, urging the State to ensure the houses are only purchased by live-in clients.

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