As rents soar and the supply of rental housing remains constrained, 2015 could be the tipping point, pushing more renters to home ownership. While younger Kenyans may prefer the flexibility of renting, home ownership is becoming more enticing, financially. The mortgage market is broader and offers competitive products thus encouraging most first time home buyers. Mortgage rates are still very attractive, and renting is just plain more expensive than owning in many metropolitan markets.
According to Khushali, Sales Agent at Dunhill Consulting Ltd, Rents have grown at twice the pace of income due to weak income growth over the past 4 years, burgeoning rental demand, and insufficient growth in the supply of rental housing. “2015, we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen this year isn’t out of the question. In fact, it’s probable.” Said Khushali. Many Kenyans believe in home ownership instead of paying rentals. However financing has always been a challenge thus the only alternative has been mortgage uptake.
One of the biggest barriers to home ownership today is that so many renters are paying so much to their landlords; they are unable to save for a home ownership down payment. That will only get worse in 2015. While developers in 2014 started the largest number of new rental units across the country, there is still a short supply of rental housing, both single and multifamily, and that means rents will continue to rise. “As we embark on this year home shopping season, we expect soaring rents to entice more people to the relative stability of home ownership, particularly younger potential buyers,” said Khushali Pindoriya.
Enticing is one thing; affording is another. Builders have not been active in the entry-level market lately, preferring the higher-margin move-up and luxury homes. Price gains are easing in the existing home market, but they are still rising, and the expectation is that mortgage rates will rise, as well.
Two major concerns remain with us in 2015: tight lending standards, which continue to keep people who could otherwise afford to buy a home from qualifying for a loan to finance the purchase, and mortgage interest rates. It’s great market for rentals for the investors, because people still can’t get loans and there’s so many renters. The lending market is tight, so there are more renters, so higher rental rates and lower vacancies make for a great rental market,” Khushali says. “On other hand, inventory is low, so if you can get your hands on a good motivated property, then you’re good for a flip.”
Real estate investment in Kenya appear more likely to flip a property in those regions where home values are higher. Areas of Nairobi, Kiambu, Mombasa Road, Thika and Eastern Bypass are receiving a higher level of real estate developments due to the higher level of demands and returns from those areas. Higher prices can translate to a faster and potentially more significant short-term return on investment. The hold-and-rent strategy seems most popular in markets where home prices are lower, allowing investors to charge a more competitive monthly rental rate and still produce reasonable returns over an extended period of time.