Kenyan Real Estate Bubble Essay
Recently in the Standard Edition, a report by the Central Bank and World Bank said that only eight per cent of Kenyans - 320, 000 households - can afford a mortgage and that nine out of ten Kenyans cannot afford to buy the houses they live in, even with a mortgage loan in tow. The report also indicated that for one to buy a house worth Sh2 million, for example, one must have a net salary of Sh100,000 and service the loan at Sh42,000 a month for a period of 15 years at an interest rate of 14.5 per cent. This came as shock since, although the total mortgage loan book in the country is approx. 16,000 accounts, the value of mortgage loans (as at the end of last year) totaled Sh.133.6billion. This can be …show more content…
September 2012. The average value for a 4-6 bedroom property is currently 32.5 million. The average value for a 1-3 bedroom property is currently 11.5 million.
The Hass Composite Letting Index is representative of all property for rental in Kenya. Rents have increased by 2.77 times since 2001. The index shows rents have risen by 4.5% in the last quarter but have risen by 12.8% in the last year.
The annual average is representative of the average rent of all properties offered to let in Kenya. The average rental for a property has gone from Kshs. 38,516 in December 2000 to Kshs. 106,635 in September 2012. The average rent for a 4-6 bedroom property is currently Kshs. 158,113. The average rent for a 1-3 bedroom property is currently Kshs. 62,518.
In conclusion, rapid rises and increase in house and land prices in Kenyan real estate market could indicate that a housing bubble is forming.
What do you expect and why?
With the increasing in real estate growth, the mortgage market is also set for a tremendous growth on the short-term. But, this can only be sustained if there are further cuts in the lending rates. Reduced rates would stimulate economic growth, wealth creation and increase home ownership. If the governement fails to control interest