[Kenya] Supply-demand imbalances sustain house prices decline streak, KBA-HPI
The Kenyan house prices remained in the negative territory during the third quarter of 2019, in what the latest Kenya Bankers Association House Price Index (KBA-HPI) has attributed to supply-demand imbalances, characterized by weaknesses in both the supply and demand side with a slant towards weaker demand.
In the period under review, house prices declined by 2.28 percent compared to the 1.72 percent decline reported in the previous quarter. The sustained decline, observes the KBA-HPI, is an indication of an emerging trend where prices have transitioned from a continuous positive trend seen since the last quarter of 2014.
"If the price softening is sustained into the last quarter of the year and going forward, it will be a pointer to a market correction that comes after a long streak of house price increases," the Index notes, indicating that house prices in the third quarter were sensitive to the size of the house, location and amenities in a trend underpinned by a supply-demand imbalance.
On the supply-side, the 25 percent increase in housing units transacted during the quarter were largely a reflection of supply-spill overs from the second quarter rather than new properties entering the market, considering that the supply-side of the market has been characterized by a slump in approvals of housing plans, a decline in cement production and consumption, with muted growth in advances to building and construction sector compounding the tapering off momentum.
"Demand side factors that explain the subdued outlook include a clear disconnect between the overall output growth in the economy and effective demand by potential home owners. Secondly, the tight credit conditions that have seen a decline in advances to households has adversely influenced their ability to access appropriate resources toward home ownership. Lastly, households' disposable incomes remain constrained," said KBA Research and Policy Director Mr. Jared Osoro.
Apartments continued to dominate buyer preferences in the housing market, suggesting predominance of the middle-income segment of the population. The KBA-HPI inter-quarter sub-regional findings show significant downside price movements, with apartments in region 2 registering the highest decline compared to region 1 even as price appreciations were registered for bungalows in region 1.
KBA launched the KBA-HPI in February 2015, to better guide policy makers and investors on the trends in the housing sector. The Index has quickly been recognised 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.