20% annual rent increase high for majority of Kenyans

In Summary

• There is need to review year-on-year increase of apartment rents around the city

• Mortgage financing also needs to be employed to ease the pressure on the private rental market

Apartments in Nairobi
Apartments in Nairobi
Image: FILE

Majority of households cannot afford to pay 20 per cent increase in rent in a single year calling for the need for a wider pool of affordable housing stock.

According to real estate developer HassConsult, there is need to review year-on-year increase of apartment rents around the city and provision of mortgage financing to ease the pressure on the private rental market as the working class grows.

“In regard to the scale of the rise in apartment rentals at nearly five times the rate of inflation, the significance of price adjustment cannot be under estimated,” the house price index for quarter one 2019 report stated.

According to HassConsult, upward pressure on the rentals is catching up with the demand in the market to 4.9 per cent between January and March, and 19.6 per cent in the year to March.

The demand is driven by the growing city’s economy and working class.  

Apartment rents began to reflect performance in 2018 after 10 years of stagnant growth and relatively lower returns on investment to landlords.

The raising growth was caused by the bulge of new buildings both as large high-rise blocks, for instance in Kilimani. Others sprout out as smaller multi-storey units in areas like Ruiru, Ruaka, Juja and other Nairobi satellite towns.

A house price index by Kenya Bankers Association for the three months to December 2018 showed that house prices increased marginally by 1.49 per cent in the period.

“During the quarter a reversal of preferences saw apartments account for 76.27 per cent of the total number of units sold followed by bungalows and maisonettes at 12.12 per cent and 11.62 per cent respectively,'' KBA research and policy director Jared Osoro said.

But while the KBA index depicted a general house-price stability in the market, limited credit was a constraint to buyers in the period.

This gave a upper hand cash buyers as banks cut back on loans disbursed to the real estate sector, edging out mortgage borrowers.

Central Bank of Kenya data showed that the value of mortgage loans disbursed by Kenyan banks decreased by 0.5 per cent between January and December 2018.

This is against an 8.7 per cent positive growth recorded in 2017.

HassConsult has however pointed to an expansion in mortgage offerings in the first three months of 2019 to the first-time buyers confined to higher income brackets and dwellers more interested in town houses, supporting the uptake. 

As a result, prices of mortgages have rose 7.9 per cent in the year to end-march, more than the current inflation at 4.35 per cent.