How The Global Real Estate Market Slowdown Is Affecting Africa
The global real estate market slowdown is being felt in Africa, with Kenya showing signs of a housing bubble that may be about to burst.
Following the trend that is sweeping across most global markets, Kenya is showing evidence of a declining real estate market, according to BusinessDailyAfrica.
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From Australia to Europe, Canada to the U.S., the real estate market globally has been experiencing a slowdown.
Toronto’s housing market prices are down three percent compared to last year, while Sydney is down five percent, and New York City showed a pricing decline of eight percent and housing sales that were down 25 percent, according to BusinessInsider.
The last decade has seen Kenyans, mostly in the middle class, investing their life savings in the real estate market.
The allure of good returns and an investment that seemed to be protected against negative headwinds attracted many Kenyans to real estate investments, according to TheNation.
New data from the Kenyan Central Bank suggests that one of Africa’s more stable real estate markets may be headed towards a bubble due to a rise in non-performing loans (NPLs) and oversupply fears.
Non-performing loans increased by $59.4 million, or 15.8 percent in the second quarter of 2018 to $428.5 million compared to the previous quarter as real estate developers outpaced manufacturers (11.7%) and traders (7.3%) in the growth of default on loans, according to the Central Bank’s report.
The report reveals that 11.3 percent of the $3.8 billion in gross loans provided to investors in the real estate sector by commercial banks over the last few years were not being serviced as at the end of June.
Currently, an average mortgage size of around $91,000 with an interest rate of 13.5 percent and a payment period of 12 years equals a monthly mortgage payment of around $1,307, which is unaffordable for over 90 percent of Kenyans, the EastAfrican reports.
In addition, it appears that the Kenyan rental market is also impacted, as average rental prices in the country have been declining since 2013, but have fallen sharply since December 2016 and remained in negative territory since May 2017, according to the Central Bank report.
At first it was thought that the real estate market was slowing down as a result of uncertainty surrounding last year’s election period, with buyers and investors unsure of whether they should commit to real estate, according to TheNation.
But now, more than a year later, the market has not recovered as many thought it would post-election, and the global real estate slowdown is clearly affecting Kenya.
There is a huge demand for housing in the country, but that pertains to low-cost affordable housing, for which there is a significant backlog.
The Kenyan government wants to build at least 500,000 low-cost housing units, which will cost below $30,000, for its citizens in the next five years, according to TheStar.
This will do little to avoid the looming housing bubble, however, as investors and developers are not interested in the low-cost real estate market because of its high risks and low margins.