Dec 7, 2022

Mawazo Writing Africa

Writing about the main

High prices, loan rates lock East Africans out of property market

East Africans interested in homeownership still have a tortuous path to navigate despite the apparent lack of affordable housing.

Uganders and Kenyans have been hit particularly hard, with real estate agents in Kampala citing the Bank of Uganda ( BoU’s decision to limit the loan-to-value ratio for home mortgages and land purchases to 85 percent, a tough lending condition that will lead to higher interest rates on home loans.

In Kenya, the real estate market faces uncertainties Times of falling investment and lower demand for home ownership as rising inflationary pressures, both locally and globally, hurt consumer incomes.

Investing in the sector through the Nairobi Stock Exchange is also attracting investor apathy. Kenya’s efforts to encourage investment in the real estate market through Real Estate Investment Trusts (REITs) face difficulties mainly due to a punitive tax system, cumbersome and varied land laws, and high compliance and listing costs.

Read: Kenya MPs Double Tax on Sale of Real Estate and Securities

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


From October to December 2021, house prices fell much faster than in the third quarter, according to the Kenya Bankers Association’s House Price Index.

Prices shrank more than 3.99% in the fourth quarter, compared down 3.7% from July to September

“The steady decline in home prices largely reflects headwinds in the economy affecting both the Nachf rage- as well as the supply characteristics of the market.” the survey says.

Low investment ts

The sharp drop in prices in 2021 reflected subdued investment, which limited the introduction of new offers , as demand remained weak.

Earlier this month, the Bank of Uganda raised its policy rate to 7.5 percent amid other loan conditions that will continue to weigh on Uganda’s real estate developers and potential homeowners.

Developers also object to government policies such as taxation of land purchases and landlord/tenant bills.

“On paper, lenders advertise 17 to 19 percent, but when you walk into a banking hall, mortgage financing comes with it over 24 percent including fees is unaffordable for many ordinary Ugandans,” says Nicholas Arinaitwe, executive director of the Real Estate Institute of East Africa.

Scarcity in Uganda

While Kampala has many commercial ell high-rise buildings, most developers are opting for low-cost short-term loans to fund them, according to Arinaitwe.

Uganda’s housing loan portfolio grew a meager 1.3 percent in the first four months of 2022, the BoU credit data. Residential mortgages increased to $15,767 billion ($4.2 billion) from $15,564 billion ($4.1 billion). Covid-19 pandemic.

“On the positive side, we are beginning to see a sustained increase in sector activity that is likely to continue in the long-term, driven by improvements in activity in other sectors of the economy,” says Mr. Mugabe.< /p>

George Odhiambo, Managing Director of Bank Populaire du Rwanda, notes that the demand for housing is there, but affordability remains a challenge due to the income disruption over the past two years.

< p>The Democratic Republic of the Congo has the largest deficit in affordable housing financing in the region with a deficit of four million units.

Tanzania follows with a deficit of three million units, Uganda with 2.4 million units and Rwanda second .3 million units and Kenya two million units.

In real terms, Uganda is reported to be producing an estimated 60,000 housing units against a demand of 200,000 housing units times per year.

Rwanda borrowed on concessional terms to create liquidity in commercial banks and begin offering long-term financing to the housing sector. The five-year, $150 million Rwanda Housing Finance Project, partially funded by the World Bank, has reduced commercial bank mortgage rates to an average of 15 percent per year.

“There are programs like that Rwanda Housing Finance Project goes up to 12.5 percent and there are peaks of 17 percent per year,” notes Mr. Odhiambo.

But he says housing loans are higher at 18 percent given the risks .

About 149,000 households in Rwanda have mortgages, according to FinScope 2020.

Low mortgage borrowing

In Kenya, the outstanding value of non-performing mortgage loans rose to Ksh 28.3 billion ( $241.88 million) from Ksh 27.8 billion ($237.6 million) in December 2020, according to the central bank.

The number of mortgage loans decreased to 26,723 from 26,971, which was mainly due to a higher number of mortgage loans repaid compared to the number of new mortgage loans granted in the year affected by the Covid-19 pandemic and lo w income levels.

The average mortgage interest rate rose from 10.9 percent to 11 .3 percent.

“Despite global bond and equity markets and geo-political tensions, we are confident that the East African real estate market offers clear value for investors seeking risk-adjusted returns in frontier markets such as Kenya, Tanzania and Uganda,” said Somaya Joshua, Head of Africa Regional Operations at Absa Corporate Investment Banking.

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

The investor firm noted that its outlook for the REIT market is down due to the continued poor performance of the Fahari I -REIT, which is the only publicly traded instrument, “negative”. pick, a supportive framework needs to be in place to increase investment and increase appetite for the REIT market,” the firm said.

Read:High taxation, multiple land laws Curb Growth of Real Estate Investment Trusts

According to a regional real estate developer Saif Real Estate, investment by Kenyans in the diaspora could boost the local housing market in 2022.

Kenya’s real estate market is first Line a rental market as home ownership is unaffordable. It is estimated that only 20% of Kenyans living in urban areas own their homes.