Topical Feature: Think Beyond the Kitchen

The new trend in the housing market is presenting homes in a ‘slightly staged’ fashion. What this simply means is that home owners/realtors need to be conscious of the fact that there are certain things that don’t appeal to many people when it comes to house shopping.

Normally one of the first things that house shoppers notice is the colours in the home. At this stage, colours are a matter of preference and especially work on the overall image of the home. House shoppers visualize their own possessions in the home and thus if it becomes too hard to visualize this then it puts them off.

Rule of thumb #1: Fresh and neutral colours make this visualization process easier and also gives the impression that the home is clean.

The kitchen is such a hot topic for house shoppers and it is nearly impossible to ignore. Having a dated kitchen will not sell your home. This is because the kitchen is viewed as the life of the home and thus if the kitchen doesn’t ‘breath life’ then making a sale will be difficult. Another thought the house shoppers will be having concerning the dated kitchen is the cost of upgrading it if they choose the home. House shoppers would much prefer a spectacular kitchen (or at least updated kitchen) that comes with a slightly higher home price tag.

Rule of thumb #2: Before placing your home in the market, take a step back and look at your kitchen. Really look at it and ask yourself, “In this time and at this price tag, would I want to buy/rent this home?”

All in all, the overall WOW factor is the make or break when it comes to selling a home. For the house shopper what seals the deal (apart from the good price tag) is what they see and experience when they first arrive at the home.

Rule of thumb #3: First impressions do matter.

Global News

In North America, new home sales hit their highest level since the housing market crash of 2008. Home price tracker, Zillow, is up more than 20% reflecting a bullish housing market. This is a major signal for the economy especially in the USA as it would see to it increased consumer spending through the wealth effect from a rebound in housing sales and prices especially in retail spending. The wealth effect here refers to the premise that consumers tend to spend more when there is a bull market i.e. in the real estate or stock market because rising asset prices make them feel more wealthy. In fact, it has been noted that changes in house prices should be considered to have a larger and more important impact than in the change in equity prices in influencing consumption in the US and other developed countries. This is the correlation that stood out during the 2008 financial crisis as the worst hit stakeholders were actual homeowners.

In Europe, total investment volumes in commercial real estate, for quarter one of 2016, is estimated to stand at €36.8 billion which is a decline comparing with quarter one of 2015. This decline is however not a signal of a declining commercial real estate market but it reflects the overall general sentiment towards investments coming from a difficult financial year in 2015. European real estate investors have been noted to continue to demand for commercial property but the threat of good qualities on offer continues to be the reason for lower investment volumes going forward in 2016.

Investor confidence in Africa has improved on the back of increased investment in the real estate space. Actis Fund has launched their Actis Africa Real Estate Fund 3 (ARE3) which raised more than $500 million exceeding its original target of $400 million. Continued interest in the African market shows the opportunity for growth in the real estate space especially in the retail market. Investment in growth markets such as Africa has been driven primarily by rising domestic consumption and the need for sustained investment in infrastructure across private equity, energy and real estate asset classes

Kenya News

For most developers, 2016 will be a make or break year coming from a below par market performance in 2015. According to the Kenya Bankers’ Association housing price index released in January 2016, average housing prices grew by a meagre 1.14% in the last quarter of 2015. However, even with this decline in housing prices, land prices in Nairobi continue to record significant growth growing five fold since 2007 with land prices growing at an average of 9% in 2015.

As the Nairobi city expands into its environs, the Upperhill area continues to remain the most expensive area in 2015 with significant growth in residential areas such as Loresho and Kitisuru experiencing significant growth of between 10% – 25% since 2014. This growth has been driven by the growing middle class appetite shifting from renting to owning homes. The key driver of real estate growth in Kenya is the devolution plan which is driving infrastructure developments.

Based on composition, apartments dominate the real estate market with 90% of the total units offered in quarter 4 of 2015, followed by maisonettes at 5.8% and bungalows at 1.41%. Apartment supply growth has been attributed to land prices and the limited urban space which forces developers to build up rather than out so as to maximize on returns. Even with the oversupply in certain market areas such as Kileleshwa, there is a deficit in new housing as close to 50,000 new residential homes are added to the Kenyan market whilst there is a 250,000 demand for units. This is largely seen in the mass market areas and with entry level housing.

There is currently a slow uptake of high end units that were especially demanded for by multinationals as they continue to place tough security standards on property before accepting to lease them. It is expected that vital decisions concerning real estate will be made in 2016 before the much anticipated General Elections in 2017 which comes with it a slow down in the real estate market.

In the office market space, the total number of offices completed in 2015 stood at 2 million sq ft which translates to a 20% increase from the 1.7 million sq ft in 2014. Popular office market areas such as Riverside drive and Parklands accounted for 14% of the total supply. In comparison, total up take of this office space stood at a lower figure of 1.33 million sq ft which was a 3% increase from 1.3 million sq ft in 2014. Again, this clearly shows there is oversupply in the market. This oversupply has also curbed rental income growth which grew by 7% in 2014/2015 compared to 13% in 2013/2014.

Kenya Housing Trends

Apartments continue to dominate the market in both sales and rentals. However, it is to be noted that increased supply of apartments continues to suppress rent in areas dominated by them. This is being experienced in satellite town such as Syokimau. Increased demand for semi-detached and detached houses has also caused an increase in the relative asking rents and sales prices and has especially been seen in areas like Loresho.

To note, close to 7% of house shoppers prefer to rent than to buy.

Sales Trends

Source: Hass Index, Quarter 1 2016

Letting Trends

Source: Hass Index, Quarter 1 2016

Interest Rate Watch

T-bills rates have remained fairly stable over the past 2 weeks with a downward trend noted across the three T-bills. The largest decline week-on-week was in the 91-Day T-bill rate followed by the 364-Day T-bill rate. The coordination between monetary and fiscal policies have continued to support Kenya’s macroeconomic stability. The National Government budget deficit is expected to narrow in the FY2015/16 easing pressure on interest rates.

Source: Central Bank of Kenya

Significant reduction of yields in the 91-Day and 182-Day papers is as a result of the treasury not accepting high yield bids. This signals the Kenyan government’s intention to bring interest rates to lower levels given that interest rates are pegged to the Kenya Bankers reference rate (KBRR) which is calculated using an average of 2 months 91-Day and the Central Bank Rate (CBR). During this week’s auction, we expect to see T-bills lower and remaining fairly stable on average.

The Monetary Policy Committee lowered the Central Bank Rate by 100 basis points to 10.5%. This is in line with their policy space for an easing monetary policy that will continue to anchor inflation expectations. It is therefore expected that inflation will decline in the short term and remain within the Government target range.

Credit Market

According to a report by the Competition Authority of Kenya, credit consumers do not scout for the cheapest credit in the market. This is primarily due to the lack of knowledge of cheaper interest rates available in the market. The move by the Central Bank of Kenya to publish the average lending rates for commercial banks has signaled hopes that educating consumers of the available interest rates in the market will trigger a decline in the overall market interest rates as consumers favour the banks with lower interest rates.

Below is a compilation of the most expensive and least expensive personal lending rates available in the Kenyan market as published by the Central Bank of Kenya.