Kenyan property developers say skyrocketing interest rates for mortgages are slowing down real estate development, putting a wrench in the government's target of building 200,000 new housing units in
"Generally, when interest rates are lower, developers are more likely to borrow money as doing so costs them less,"
Because banks use purchased property as collateral and can repossess it if the borrower is unable to repay the loan, most prospective developers do not want to take the risk.
"No property developer wants to lose his property that way, so most developers are [avoiding] borrowing from banks, opting for other alternative sources of financing," Achoki said.
But since there are few alternative sources of financing for housing development, most developers reduce their number of investments or take longer to complete a single project, she said.
Surge in mortgage rates stifles home buyers, investors
Even though the
"The surge in mortgage interest rates started in 2011 when the
The high cost of lending has contributed to the slow pace of new development in
New construction amounted to barely 7.5% of government's target in 2013, creating a deficit of 185,000 homes in the capital for that year, according to a report released
The report blames commercial banks' huge mortgage profit-margins for the slow real estate market.
"They can make reasonable profits but not go for overkill," Kariuki told Sabahi. "There is definitely a need for the government to either develop alternative sources of funding for property developers or to prevail upon commercial banks to lower interest rates so that more Kenyans can afford mortgages."
Kariuki said affordable financing is key to the growth of the Kenyan economy because cheap lending rates would create an appetite among middle-class Kenyans to purchase residential properties, which would lead to a boom in real estate property market.
"In periods of low interest rates, more houses are often built as demand rises and development companies are able to borrow money at a cheaper rate to finance the construction," she said. "The sales of homes also rise as more consumers are able to take out a low-cost loan."
Stagnation in property market impacts entire economy
His plan was to borrow
"I was expecting the interest rates to have dropped because of the falling inflation rate and stiff competition among commercial banks, but they are still unaffordable," Muli told Sabahi.
"If the rates would drop to a single digit, more property developers could afford to borrow," he said, adding that he will continue to wait and see.
"High levels of economic growth generate higher incomes, more investment and increased consumer spending," he told Sabahi. "The expectations of economic stability drive prospective homeowners into the mortgage market."
Awiti said stagnation in the property market causes other sectors of the economy to suffer, especially in related industries such as demand for construction materials and employment of both skilled and unskilled labourers.
"Rising interest rates affect both housing developers and consumers [whether tenants or home buyers] by reducing consumer spending and investment," he said. "Therefore the economy is likely to experience falls in consumption and investment."
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