A policy is defined as a plan of action adopted or pursued by an individual, government, party or business. So what are some of these guiding principles that will tend to affect your decision to develop a real estate project in Kenya?
Interest rates have a major impact on the Kenyan real estate market. Changes in interest rates greatly influence an investor’s ability to purchase property. When interest rates are low, developers are more likely to borrow money as it costs less. However, when interest rates are high, credit becomes more expensive, making investors to shy away from loans. This is because as the interest rates fall, the cost to obtain a mortgage to buy a home decreases, therefore creating a higher demand for real estate, which pushes prices up. On the other hand, as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate.
As an emerging market, real estate investment in Kenya is directly affected by forex exchange rates. In 2015, the depreciation of the shilling against the dollar and the British pound, caused inflation that exceeded 8% in December 2015, therefore affecting investment by significantly increasing the cost of finance which spirals to cause an increase in the number of red loans. This led to a slowdown in the real estate market, with the house price index gaining a marginal 4.21% increase in the first three quarters of 2015, according to the Kenyan Bank Association House Price Index.
Legislation is also another factor that can have a sizable impact on property demand and prices. Tax , credits, deductions and subsidies are some of the ways the Kenyan government temporarily boosts demand for real estate and related industrial market products. Being aware of current government incentives can help you determine changes in supply and demand and identify potentially false trends. High tax rates reduce the income of potential real estate investors. Lower income affects the allocation of resources like land in subsequent investment cycles, which affects consumer buying patterns and general productivity and growth of the economy.
The Kenyan Government, in response to the country’s significant growth in its real estate sector, has, taken steps to improve the legal and regulatory framework in real estate. In recognition to this, the Kenyan Government has introduced a framework for real estate investment trusts (REITS). These are regulated investment vehicles that enable collective investment in real estate. Real Estate Investors, both retail and corporate, are allowed to pool funds under the umbrella of the REIT and then engage in real estate projects. The existence of regulatory bodies like the National Construction Authority (NCA), National Environmental Management Authority (NEMA), and County Government Local Authorities also play a major role in the setting of rules and guidelines that affect the Real Estate Industry. In addition, information on property and land tenure are found in various documents, the most important being the Constitution, the Lands Act 2012, Land Registration Act 2012, and National Lands Commission Act, all leading to policy issues that affect real estate market in Kenya.