A few days ago, the Kenya Bankers Association, released the latest House Price Index (HPI) of the 1st Q of 2019. This report marks clearly the declining trend that the housing market has been experiencing over the last two years in the most incontrovertible and uncontested way, a negative growth of 2.78% marking the weakness of the sector.
According to the Kenya Bankers Association, the rate of growth in house prices sunk to a five- year low of 2.78 percent in the first quarter of the year due to constrained credit flows to both the supply and demand side. The report shows that prices for the quarter ending March moved to negative growth from a medium increase of 2 percent in similar quarter last year.
The housing and property market will have to address the harsh realities of real data and the real dynamics of the industry. Unreasonable and exaggerated expectations combined with the thirst for quick and easy enrichment have for many years dragged a large part of the population into an investment deception which unfortunately will cost a lot to many.
It is clear that the people deliberately moved to high-risk investment with the notion that when investing in real estate there is no risk. After the catastrophe in which thousands of investors lost a lot on the Kenya stock exchange, the period when the real estate market looked like an easy way for quick enrichment is coming to an end. This signals the great need of the economy to invest in productive sectors and sustainable growth.
Kenya’s economy has come a long way in recent years, but it remains a weak economy in the world, which is heavily dependent on external lending and financial assistance to meet even the most basic needs.
In recent years, a wrong impression that the country’s economic data has improved in a magical way to an extent that explains the possibility of investing in expensive real estate and an absurdly rapid upgrading of the middle-class living standard. In fact, Kenya’s middle class has limited purchasing power but also almost non-existent access to finance. Kenyans have been investing unreasonably in land and property by playing the game that was smartly set by those who manipulated the market and dragged them into bad and expensive investment choices.
Unfortunately, reality finds the real estate market exposed to a large supply of expensive real estate and insufficient demand. These are conditions for a necessary serious price correction. The problem is that due to the range of overvaluation of real estate the downward trend will be long and sharp. The banking system and the country’s economic facts are not enough to support the market as it is today, and those who have positions will also bear the cost.
The market has clearly shown that the housing needs of the country are in a completely different market segment than those that were incorrectly in the center of investment interest in recent years
Today all interested parties, including the state, developers and large investors are focusing on the affordable housing market.
The key argument that the market needs more than 200,000 homes per year has now been put on the right track by making it clear that these homes refer to the need for affordable housing for the lower class of the Kenyan market, the poor and homeless.
In a few words, all those who invested in expensive real estate projects and overvalued land are now facing the cost of an inefficient market which was manipulated without considering the consequences of such a market development.
I am afraid that whatever the HPI shows, the warnings from market analysts or whatever I say makes no difference. The actual market reality is irreversible. The price correction is inevitable. Losses have been registered over the last 2 years ago. Any investment that cannot produce more than inflation is a bad investment. If you include the lost opportunity cost and the currency fluctuations of the shilling as well as the cost of money then it is obvious that the property market has been producing negative results for a long time.
Today the KBA HPI simply displays in the most indisputable way that even without any comparison the Housing market is now officially producing negative growth which means losses.
Basic principals of investing state that investment is based on a risk-return trade-off. So, all those who expected big profits from real estate investments should have also considered the possibility to face equally big losses. Contrary to the common belief, you can go wrong with property, land and real estate in general and the HPI is here to seal this statement.
As I have stated before, it is time to sit back and peruse your investments and positions, before panicking. Take professional advice and make rational decisions to help you minimize losses and control your risk exposure. Stay up to date and stop listening to the rumors. It is time to start reading the facts.