Kenya smallholder tea farmers earn Sh63.6 billion from tea exports
Costs of homes likely to go down as interest rates by commercial banks fall
By TF News
Prices of houses could drop as the government reduces borrowing from the local money market after a successful euro-bond last month that raised billions of shillings, says Hass Consult.
The real estate consulting firm that unveiled the Hass property price indices for the second quarter Wednesday says interest rates charged by commercial banks are likely to fall as government reduce domestic borrowing.
High interest rates charged by commercial banks had discouraged investors in the housing sub-sector and those who borrowed from the banks passed the same to buyers hence high cost of homes.
"The correction in the relationship between rents and house prices was a necessary one, following the run-up in property prices from 2008 to 2011," said Ms Sakina Hassanali, Head of Research and Marketing at Hass Consult.
"With the interest rate environment now expected to shift, the restoration of property rental yields back into the 7 per cent to 8 per cent range is once again attracting new investor interest as a long-term investment."
However, the index revealed rising price strength in the mid-market, driven by the recovery in rental yields as a result of the two year trend of rent rises ahead of sales price growth.
It said the rise in property sales prices slowed, overall, in the first quarter - depressed by a 0.3 per cent drop in asking prices for detached houses - to rise by 0.6 per cent across the property market.
This brought house asking prices to the same level as a year earlier, but the plateau in overall pricing reflected a mixed underlying performance - with a 2.2 per cent fall in detached house prices over the last 12 months offset by a 6.7 per cent rise in semi-detached house prices and a 1.5 per cent increase in asking prices for apartments.
It says the ongoing and accelerating strength in the market for semi-detached houses comes at a time when interest rates are expected to fall following the placement of the government's EuroBond - and the consequent easing of public demand for domestic debt.
Semi-detached houses have recorded the best rental yields in the Kenyan property market, peaking at 9.69 per cent in December 2007, before falling - on swift house price rises - to bottom at 5.95 per cent in August 2011.
However, the marked surge in rental prices in the last two years, up a further 2.7 per cent in the second quarter, has delivered steady gains in rental yields. Rents for semi-detached houses rose a further 3.2 per cent in the second quarter of 2014, taking rental yields to 7.77 per
The 3.2 per cent rise in apartment rents in Q2 saw rental yields for apartments recover to 7.47 per cent.
For detached houses, which have traditionally enjoyed yields at least one percentile point lower than semi-detached houses, rent rises in the second quarter of 2.4 per cent delivered a rental yield by the end of the quarter of 6.55 per cent.