Interview: Mohamed Hassanal
What factors lie behind Kenya’s real estate boom, and to what extent can a bubble be avoided?
MOHAMED HASSANALI: The first part of the real estate boom was prompted by economic growth during the administration of former President Mwai Kibaki and was facilitated by the use of the off-plan sales model. This was augmented by a pent-up demand for real estate. Historically, Kenya has had a real affinity for property ownership, and the sector has outperformed other asset classes, which makes it an attractive investment.
The market grew exponentially from 2004 to 2012; however, following this period, prices began to plateau in some segments. This is attributed to a slowdown in the economy, as well as an oversupply in the segments in question. This is simply a price correction and by no means a bubble. In fact, property prices in Kenya are lower than in other countries in the region. A bubble is characterised by large amounts of readily available financing, speculative investors and low levels of eventual occupants. None of these factors is characteristic of the Kenyan market, where there is still strong local demand. Housing needs are estimated at 200,000 houses per year. It is important to ensure supply grows in those segments where it is most needed.
The growth in real estate prices is what makes observers ask questions about a bubble; however, a lot of this can be attributed to input costs. Land prices are often comparable to those in London, and construction costs are typically very high. At the end of the day, we have a strong demand for housing, and we are still nowhere near meeting this.
With only 20,000 mortgages on the market, what steps can be taken to incentivise first-time buyers?
HASSANALI: Opening up the mortgage market to the end buyer is essential as that will unlock the middle-income market more thoroughly, but the government has to take a more proactive role in kick-starting the mortgage process. Given the high level of interest rates, there is an urgent need to make mortgages more affordable so that the expanding middle class can access this avenue of funding. There is also a sizeable informal segment that does not have a large balance sheet. Yet even if these people can afford to borrow, they cannot prove that they can pay. Current mortgages are largely geared towards salaried employees and not self-employed individuals and entrepreneurs, whose numbers have far outgrown those in formal employment. Financial institutions must target this segment. The entire mortgage process is plagued by the perception that it is complicated. Simplifying it or using intermediaries such as brokers would improve access.
What challenges exist in working with Kenyan developers, as compared to those in other countries?
HASSANALI: Developers still have a great amount of work to do regarding how, where and at what price they supply new housing. Most developers in Kenya are landowners with a short-term horizon. Large-scale developers like those one might see in Dubai, London or South Africa do not really operate in Kenya. This can potentially become problematic because decision-making here will be guided by different factors. Due to the small-scale nature and lack of experience of most developers, there have been a number of issues to do with quality and timelines. Not many options exist for buyers to enforce contracts, and a suitable regulatory environment is not currently in place. Buyers typically pay to get a problem fixed themselves.
Issues to do with quality should now improve given the new capabilities of the National Construction Authority. Empowering the authority is a wise step, especially with contractors now having to register and have their proposals reviewed. Issues with timelines look set to diminish, as developers will not be able to commit to projects that they are unable to provide in a timely and quality manner. Additionally, information and market data is becoming more important, and developers need access to this in order to plan effectively.
You have reached the limit of premium articles you can view for free.
Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.
If you have already purchased this Report or have a website subscription, please login to continue.