High prices and lending rates prevent East Africans from accessing the property market



East Africans interested in home ownership still have to navigate a tortuous path, even with the evident lack of affordable housing.

Ugandans and Kenyans are particularly affected, with estate agents in Kampala calling the Bank of Uganda’s (BoU) decision to cap the loan-to-value ratio of residential mortgages and land purchases at 85%, a lending condition stringent which will result in higher interest rates for home loans. .

In Kenya, the real estate market is facing a period of uncertainty due to declining investment and falling demand for home ownership, as mounting inflationary pressures, both locally and globally, affect consumer income.

Investments in the sector through the Nairobi Stock Exchange are also attracting investor apathy. Kenya’s efforts to promote investment in the real estate market through Real Estate Investment Trusts (Reits) are facing challenges largely due to a punitive tax regime, cumbersome and multiple land laws and high costs compliance and registration.

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A recent survey by the Kenya Bankers Association shows that investment in the real estate market is declining while demand has also fallen.


Between October and December 2021, house prices fell at a much faster pace than in the third quarter, according to the Kenya Bankers Association House Price Index.

Prices contracted at a higher rate of 3.99% during the fourth quarter, compared to a contraction of 3.7% from July to September.

“The steady decline in house prices largely reflects headwinds in the economy that have influenced both the demand and supply characteristics of the market,” the survey said.

Low investments

The sharp drop in prices in 2021 reflects the weakness of investments which limited the deployment of new supply while demand remained weak.

Earlier this month, the Bank of Uganda raised its benchmark rate to 7.5% among other loan terms, which are expected to further test Uganda’s property developers and potential homeowners.

Developers are also challenging government policies such as land purchase taxation and landlord/tenant billing.

“On paper, lenders advertise 17% to 19%, but when you walk into a banking hall, mortgage finance is out of reach for many ordinary Ugandans at over 24% including fees,” says Nicholas Arinaitwe, director Executive of the Real Estate Institute of East. Africa.

Shortage in Uganda

Although Kampala has seen many high-rise commercial buildings, Mr Arinaitwe says most developers are opting for cheap short-term loans to finance them.

Uganda’s housing loan portfolio grew by a meager 1.3% in the first four months of 2022, according to BoU loan data. Residential mortgages increased from Ush 15,564 billion ($4.1 billion) to Ush 15,767 billion ($4.2 billion.

Michael Mugabi, Managing Director of Housing Finance Bank, attributes the slow recovery of the EAC mortgage market to the Covid-19 pandemic.

“On the positive side, we are starting to see a persistent increase in activity in the sector, which should be sustained over the long term, driven by improvements in activity in other sectors of the economy,” Mr. Mugabi.

Banque Populaire du Rwanda Managing Director George Odhiambo notes that demand for housing exists but affordability remains a challenge due to income disruptions over the past two years.

The Democratic Republic of Congo faces the highest backlog in affordable housing finance in the region with a shortfall of four million units.

Tanzania follows closely with a deficit of three million units, Uganda 2.4 million, Rwanda 2.3 million units and Kenya two million units.

In Uganda, estate agents say the country is producing about 60,000 homes against a demand of 200,000 homes per year.

Rwanda borrowed concessional loans to create liquidity in commercial banks to start providing long-term financing to the housing sector. The five-year, $150 million Rwanda Housing Finance Project, funded in part by the World Bank, has lowered mortgage rates to an average of 15% per year for commercial banks.

“There are programs like the Rwanda Housing Finance Project that go down to 12.5% ​​and there are maximums of 17% per year,” Odhiambo notes.

But he says construction loans for residential units are higher at 18% given the risk.

According to FinScope 2020, approximately 149,000 households in Rwanda have mortgages.

Low use of mortgage loans

In Kenya, outstanding non-performing mortgages increased to Ksh 28.3 billion ($241.88 million) from Ksh 27.8 billion ($237.6 million) in December 2020, according to the bank. central.

The number of mortgages fell to 26,723 from 26,971, mainly due to a higher number of mortgages paid off compared to the number of new mortgages granted in the year affected by the Covid-19 pandemic and low income levels.

The average interest rate applied to mortgage loans rose from 10.9% to 11.3%.

“While there are certain headwinds facing the global debt and equity markets as well as geopolitical tensions, we believe the East African property market offers clear value for investors wishing to realize risk-adjusted returns in frontier markets such as Kenya, Tanzania and Uganda,” said Somaya Joshua, Head of Regional Operations for Africa at Absa Corporate Investment Banking.

According to Cytonn Investments Ltd, investors in Kenya are expected to be more conservative in the residential market sector due to the upcoming August 9 general election.

The investment firm noted that its outlook for the REIT market is “negative” due to the continued poor performance of the Fahari I-REIT, which is the only listed instrument.

“We continue to believe that for the REIT market to choose, a supportive framework must be in place to increase investor appetite for the REIT market,” the company said.

Lily: High taxation and multiple property laws are holding back the growth of real estate investment trusts

According to a regional property developer Saif Real Estate, investments from Kenyans in the diaspora could boost the local housing market in 2022.

Kenya’s property market is primarily a rental market due to the unaffordability of home ownership. It is estimated that only 20% of Kenyans living in urban areas own their homes.