This archive report was first published on 15 September 2019.
As of September 15, 2019, Kenya's real estate market was in an expansion phase, driven by the growth of the middle-class and increasing disposable incomes.
The industry is a free market, where prices are driven by supply and demand. With the demand for housing increasing, prices have also risen, making it a lucrative sector for investors.
Identifying a Housing Bubble ¶
A housing bubble occurs when market prices reach unsustainable levels and naturally decline. According to the International Monetary Fund (IMF), a bubble is a temporary event that may last up to several years.
Investors can predict the trend of real estate by analyzing other factors in the economy, such as interest rates, unemployment, and consumption. By keeping track of these factors, investors can identify a housing bubble and make informed decisions.
Metrics for Predicting the Market ¶
One key metric for predicting the market is the number of unsold homes in a market. This can help investors determine which stage of the cycle the market is in and whether there is a need to add more units.
Another important factor is the housing inventory, which helps developers predict how many units are required for a certain market and avoid hyper-supply. Excess supply can lead to low occupancy and lower rents, reducing landowners' revenues.
Interest Rates and Unemployment ¶
Low interest rates can fuel the rate of home ownership as loans become cheaper. However, investors should be wary of a property market driven by interest rates, as it can be volatile. Increased rates can reduce mortgage borrowing, putting home ownership out of reach for many buyers.
Unemployment, decreased consumption, and decreased company investments can also drive down demand, leading to a housing bubble.
Comparing Rental and Capital Values ¶
Comparing the cost of renting a unit and buying is a good way of predicting a housing bubble. The prices of the two change simultaneously when subjected to economic factors.
Disparity between the two values, where the capital value is considerably higher than the rental one, is a sure indicator of a housing bubble.
Conclusion ¶
Kenya's real estate market is well into the expansion phase, and trends become predictable as you become more seasoned in the sector. By analyzing factors such as housing inventory, interest rates, unemployment, and the disparity between rental and capital values, investors can make informed decisions and predict the market.
