KENYA – East African Property Investment (EAPI) Summit analysts are foreseeng an uptick in activity in the real estate market following the recent moves to reopen financial flows into the sector by uncapping interest rates.

The change follows a decline in financing that saw the sector’s contribution to the country’s GDP halve from 8.8 per cent in 2016 to 4.1 per cent by 2018.

“The lifting of the caps has prompted renewed interest by investors in the Kenyan market, which marks a distinct and new development,” said Kfir Rusin, Managing Director of the East Africa Property Investment Summit.

“’Following the introduction of the interest cap in 2016, international and local investors shied away from investing in property funds, particularly in the high-end residential, retail and commercial segments. Only logistics investments withstood the financial clampdown,”

“The opening of new routes to housing finance and lifting of restrictions on debt financing mark material turning points for the real estate market, which has become notably subdued,” said Kfir.

Over the last three years, the growth in property market activity has slowed as commercial credit from banking institutions has tightened.

According to the Bank Supervision Annual Report by the Central Bank of Kenya, the net growth in commercial loans fell to eight per cent following the introduction of the rate cap in 2016, which was just one 12th of the 96 per cent growth rate recorded in 2015.

Loans to the real estate sector dropped even more sharply, falling by nine per cent in 2017. In 2018, property loans increased marginally, by four per cent, but most of the new loans were distributed as refinance for affordable housing mortgages, rather than as real estate development finance.

The cap additionally saw banks and investors compensate for reduced interest income by offloading or avoiding stocks perceived to be less liquid or higher risk, such as real estate, and purchasing more liquid investments, like government bonds.

As a result, by the end of 2017, government securities accounted for 24.9 per cent of total banking sector assets, up from 23.4 per cent prior to the caps. This shift from commercial loans to government bonds continued throughout 2018 and 2019.

By the end of 2019, building plans approved for building permits by the Nairobi City County Government had declined by 10.89 per cent from a year earlier, to 957 approvals.

At the same time, the Kenya National Bureau of Statistics reported decelerating growth in the property sector to 5.8 per cent by the end of 2019, which was its slowest growth since 2014.