Housing markets remained depressed during the second quarter of 2019. According to the Kenya Bankers Association-Housing Price Index (KBA-HPI) for the second house prices were in the negative territory for the second consecutive quarter. This is an early sign of an emerging trend, considering that previous instances of negative prices have been followed by a correction in the subsequent quarter.
The KBA-HPI indicated a 1.72 percent decline in house prices during the second quarter compared to 2.78 percent decline in the previous quarter. Underlying the observed decline in house prices is the interplay between weak demand and supply conditions on the back of limited credit.
The supply side weaknesses can be inferred from reduction in the number of building approvals. Between January to June 2018 there were 2,252 approvals compared to 2,238 approvals for the period July to November 2018.
The evident increase in sales during the second quarter compared to the first quarter is more a reflection of supply spill-overs than new units being put in the market. On the overall therefore, the housing market remained subdued.
KBA attribute the subdued housing market outlook to two factors. First, is the limited demand for the type of housing supply that has saturated the market. This is due to the fact that household incomes have remained relatively low for most people. Second, is the long running constraints in accessing credit
These credit constraints that affected both the supply and demand side of the housing market have had a notable influence on the price evolution. The limited availability of funding to the housing market has been on the back of increased levels of non-performing loans generally, and especially the construction sector. As a result, lenders have been more cautious about taking in more risk from the sector.