Home Property & Real Estate Real Estate profit margin shrinks amid pandemic

Real Estate profit margin shrinks amid pandemic

by Oloo Winnie
Inspectorate body clears Everest Park Estate over safety concerns
House Prices Contracted By 0.08 Percent In Quarter Three, Up From 0.20 Percent In The Second Quarter Of 2020
Demand For Apartments Shrank By 63 Percent While The Demand For Bungalows And Maisonnetes Expanded By 9 Percent And 72 Percent Respectively

The rate of house prices growth in the third quarter of 2020 remained in the negative territory registering a 0.08 percent contraction compared to the 0.20 percent reported in the second quarter of the year.

The observed contraction, the Kenya Bankers Association House Price Index (KBA-HPI) indicates, is on account of the challenging economic environment on the back of the COVID-19 pandemic, which has significantly affected both the demand and supply side of the market.

“Housing price fundamentals, just like prices of non-house goods, substantially depend on the state of the economy. The precipitous softening of the economy and the attendant fall in consumption expenditure, the ensuing income uncertainty and low consumer sentiments induced by the COVID-19 pandemic is having adverse effects on the housing market. This effect is seen on both the demand and supply-side of the market,” the KBA-HPI notes.

During the period, demand remained weak with concluded house sales levelling off. Even so, demand for houses remained heterogeneous with the quarter-on-quarter changes in demand for apartments declining by 63 percent while demand for maisonettes and bungalows registering a growth of 72 percent and 9 percent, respectively. The KBA-HPI, however, indicates that high demand for units within the top end of the market more than offset the decline in the lower segments, supporting house price stability.

The Index indicates that the observed house prices trajectory has been further influenced by the supply side weaknesses which continue to reveal themselves in softening of such indicators as cement production and consumption, providing the cushioning effect on house price declines, and hence the observed stabilization of house prices.

“As we have argued before, during periods of a sharp contraction in economic activity house prices either remain flat or decline slightly. The fact that the decline is not as sharp is attributable to the slow response of both buyers and sellers in response to the declining economic prospects,” observed Kenya Bankers Association Chief Executive Officer Dr. Habil Olaka.

The report further observes that homebuyers’ preferences continue to be dominated by apartments accounting for 43 percent of the concluded transactions during the quarter and concentrated in Region 1, an indication of buyers’ preference for affordable houses.

Note to Editors:

To better guide policymakers and investors on the trends in the housing sector, the banking industry’s umbrella body, the KBA, launched the KBA-HPI in February 2015. The Index has quickly been recognized as a credible analytical tool that is useful for tracking housing sector dynamics and price movements. The KBA-HPI follows the Laspeyers Index method where the Index is computed by getting the ratio the estimated current quarter price from the hedonic method multiplied the weights of the preceding quarter to the price of the preceding quarter multiplied by the respective weights of that quarter. The weights of the quantitative variables are obtained by getting their respective mean values. For the dummy variables however, their weights are computed as the proportions of the number of houses possessing a certain attribute to the total number of houses.

The KBA-HPI regions are based on clustered price ranges across several counties as follows:

Region 1: Athi River, Mlolongo, Mavoko, Nakuru, Ngong, Ruaka, Syokimau, Embakasi, Kahawa Wendani, Thika, Mtwapa, Utange, Kitengela, Kiembeni, Nyeri, Likoni, Eldoret, Ruiru, Kilifi,Thika road (Kasarani, Roysambu, Ruaraka), Meru, Bungoma.

Region 2: Thindigua (Kiambu Road), Kiambu, South B, South C, Kabete, Komarock, Imara Daima, Membley, Buruburu, Rongai, Waiyaki Way (Uthiru, Regen, Kinoo, Kikuyu), Mbagathi road, Ngong Road, Langata.

Region 3: Kileleshwa, Kilimani, Lavington, Westlands, Spring Valley, Riverside, Milimani (Kisumu), Milimani (Nakuru), Runda, Karen, Garden Estate, Parklands, Ridgeways, Muthaiga, Loresho, Kitisuru, Adams Arcade, Nyali, Mountain View, Nyari.

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