According to the KBA chief executive Habil Olaka, the miserable growth – the slowest since the association launched the index in 2015 – is a reflection of the current economic performance, especially following the recent reduction of credit extension to the local private sector.
“The impact of the constrained private credit is two-fold. On the one hand, it hinders demand of the housing units in the market, since the purchasing power of the potential buyers has been squeezed. On the other hand, it limits the supply of the units to the market since project finance to the developers has been limited,” Mr Olaka said.
The bankers lobby expects house prices to grow more slowly in the near future as investors postpone their spending plans in order to study the market.
“We might see this trend continue in the foreseeable future, especially as the market develops a wait-and-see approach,” he added.
The Banking Act 2016, which came into force towards end of last year, put a ceiling on the rate at which banks can charge interest on loans.
The capping of interest rates, now at 14 per cent, has seen credit to the private sector plummeting from a growth of 4.7 per cent to 2.1 per cent, according to figures from the Central Bank of Kenya.
This has also affected the country’s real economic growth, which stood at 4.7 per cent in the first quarter of the year – the slowest level since 2013.
Despite the slow growth in property values, the average house price in Kenya stands at Sh8.3 million – with the cheapest home in Nairobi now priced at Sh4 million up from Sh5,000 in 2000 according to the World Bank.
This means over 90 per cent of Kenyans cannot afford even the cheapest house, a worrying situation that is condemning most urban dwellers to informal settlements.
But according to KBA director of Research and Policy Jared Osoro, a new trend where developers are shifting their focus to low cost housing is slowly emerging in Nairobi and other major towns.
“Going forward developers will concentrate on the low-end and middle markets,” he said, adding that for this to work the new frontiers would need to be supported with infrastructure, reduced land prices, and the use of modern building technology.