Houses worth over Sh46 billion were completed last year, representing a 22 per cent growth for the sector, which was beset by a sharp increase in costs of building materials and bank lending rates.
The housing sector was driven mainly by a rush among private developers to plug the widening deficit of formal settlements against a growing demand.
“Demand for housing coupled with availability of credit from commercial banks and mortgage institutions provided the necessary support to the industry,” said the Kenya National Bureau of Statistics in the 2012 Economic Survey released on Tuesday.
Over 94 per cent of the completed buildings were developed by investors in the private sector, showing the diminishing role played by the State in the supply of new housing.
State-owned buildings worth Sh2.6 billion were completed in the year, nearly a three-fold increase over the Sh1 billion-worth done in 2010, as the government increased its allocation to the development of housing for civil servants.
The growth in the sector was, however, much slower compared to the over 100 per cent jump reported previously when the value of completed buildings rose from Sh17.5 billion to Sh37.7 billion.
The findings confirm earlier projections from several real estate experts who estimated a slower growth owing to the effect of high volatility in commodity prices and a sharp increase in lending rates.
Samuel Rono, the property portfolio manager at Regent Management— a real estate firm, attributed the slowdown in development to the high interest rates environment, which discouraged both borrowers and developers from accessing credit from banks.
“The high interest rates have discouraged borrowing, we expect a further slowing down this year,” said Mr Rono, adding that some of his clients had suspended building due to the high cost of funds.
Executives at KCB and Housing Finance—the leading mortgage loan providers—have said that the credit appetite from the private sector has been ‘significantly dampened’ since the second half of last year, when the cost of capital shot up by about 10 per cent.
HassConsult, another real estate firm that manages residential estates in the top end segment projected in its quarterly report released last month that activity in the housing market had shrunk. The firm also reported a near disappearance of mortgage buyers from the market, meaning less inflow for developers especially in the middle income sector where most buyers would rely on loans.