Kenya real estate financing

The real estate market is poised for an uptick in activity following the recent moves to reopen financial flows into the sector by uncapping interest rates.

The change follows a decline in financing that saw the sector’s contribution to the country’s GDP halve from 8.8 percent in 2016 to 4.1 percent by 2018.

“The lifting of the caps has prompted renewed interest by investors in the Kenyan market, which marks a distinct and new development. Following the introduction of the interest cap in 2016, international and local investors shied away from investing in property funds, particularly in the high-end residential, retail and commercial segments. Only logistics investments withstood the financial clampdown,” said Kfir Rusin, Managing Director of the East Africa Property Investment Summit.

Over the last three years, the growth in property market activity has slowed as commercial credit from banking institutions tightened.

According to the Bank Supervision Annual Report by the Central Bank of Kenya, the net growth in commercial loans fell to eight percent following the introduction of the rate cap in 2016, which was just one 12th of the 96 percent growth rate recorded in 2015.

“The opening of new routes to housing finance and lifting of restrictions on debt financing mark material turning points for the real estate market, which has become notably subdued,” said Kfir.

Loans to the real estate sector dropped even more sharply, falling by nine percent in 2017. In 2018, property loans increased marginally, by four percent, but the majority of the new loans were distributed as refinancing for affordable housing mortgages, rather than as real estate development finance.

As a result of these multiple shifts, construction levels slowed down, with developers focusing on completing and selling existing projects.

The Kenya National Bureau of Statistics reported decelerating growth in the property sector to 5.8 percent by the end of 2019, which was its slowest growth since 2014.

However, the removal of the rate cap is now expected to restore market liquidity, in a prospect that prompted a rally in Kenyan bank shares on the Nairobi Stock Exchange as investors rushed to buy the stocks in anticipation of increased gains ahead.

“As a dynamic that has positively influenced the bourse and promises greater access to mortgage credit too, we now expect more activity from local banks in the form of debt lending to the real estate sector,” said Rusin. “However, we do anticipate a time-lag in this, as developers weigh the new array of financing options and apply for approvals.”

EAPI issued its outlook ahead of the seventh Annual East Africa Property Summit, to be held in Nairobi on 1st and 2nd April 2020, bringing together over 500 local and international investors from over 250 companies.

The stakeholders’ focus this year is on thinking differently in unlocking new financing routes, achieving competitive pricing, learning from emerging markets globally, and future-proofing developments against cycles ahead.

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