Townhouse rentals driven up by mortgage bottleneck

• Property prices saw some small upswing in Q2

• Standalone houses saw strongest gains, up 3 per cent on previous quarter driven by sharp rises for particular properties chased by multiple buyers

• Town house prices static, although apartments saw some gain

• Property buying activity, overall, was subdued and closing prices flat

• Rentals climbed further, most strongly for town houses, up 5.1 per cent

• But asking rents fell for apartments

• Small rises in rents and sales prices brought real estate returns close to lending rates

• For cash buyers, returns remained ahead of stock market

House prices saw some, small upswing in the second quarter of this year, but generally activity was subdued, reported HassConsult today as it unveiled the results for the second quarter house price indices and The Mortgage Report.The strongest gain in house prices in the quarter came for standalone houses, where asking prices rose by 3.0 per cent on the three months earlier. But this gain was driven by very sharp pricing rises for particular properties, chased by multiple buyers.

The pricing of town houses was static, up just 02.2 per cent, while prices for apartments rose by 1.7 per cent.

Overall, activity in property buying was subdued, but rental activity was sharply stronger. This was pronounced in the town house segment, where asking rents rose by 5.1 per cent on the previous quarter.

“It is in town houses that we are seeing the real impact of the current mortgage bottleneck,” said Sakina Hassanali, Head of Marketing at HassConsult.

“Those who would have been buying town houses at this stage are finding the current high levels of mortgage repayments beyond reach, and so are moving to rent such houses instead. But landlords, looking at buying town houses as a buy-for-rent are facing a similar equation of returns that are not currently covering the cost of finance.” “This is putting some pressure on Town House rentals,” she said.

In the apartments segment, however, rents fell in the second quarter, despite the move towards enforcement of taxation on landlords, suggesting that tenants are not materialising at higher pricing. “This slowdown in rent rises for apartments is suggestive of an actual pricing barrier, where landlords would like higher returns but cannot fill at higher rents. We believe it may indicate more stable apartment rents for some time,” said Ms Hassanali.

Nonetheless, the incremental rises in pricing and rental returns, and the further fall in mortgage lending rates did bring some segments of the real estate market into alignment, such that the returns from rent and price increases was equal to the costs of finance. For cash buyers, the sector remained the country's strongest asset class, with returns from real estate since January 2011,and throughout the slowdown caused by high interest rates, higher than returns from the Nairobi Stock Exchange.

'For cash buyers, property remains the country's best investment for returns, but with the market now driven primarily bycash buyers, the issue is the lack of access for home buyers who need finance,” said Ms Hassanali.