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The Housing Bubble in Kenya will Burst very soon....
Rank: Veteran Joined: 12/23/2010 Posts: 1,229
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Cde Monomotapa wrote:KCB S&L MORTGAGES have launched their online portal on www.kcbpropertyguide.com - check it out. I've liked their Forex (USD) Mortgage product targeting the diaspora, 7% p.a Nice!
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Rank: Member Joined: 12/7/2010 Posts: 520 Location: Epicentre - Ngamia 1
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Wendz wrote:why should i pay 60k per month for the next 15 years when i can pay 20k per month for the same house and invest the rest and come out better off than the person who owns the house?
Makes a lot of economic sense to me....@Wendz 100M for a 1/4 acre and 150M for a 1/2 acre in the leafy surbubs,can they justify these prices?I have recently noticed whole apartment blocks going for months on end without having watejaz..all in the name of being sold ama 90K/Month rent Build your own dreams, or someone else will hire you to build theirs - Farrah Gray.
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Rank: Member Joined: 6/26/2008 Posts: 319
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I just looked at the KCB site above - their cheapest property is @4.5M. Using their mortgage calculator, I was able to arrive at 58424.33 as monthly payment - @13.5% for 15 years. The actual amount you end up paying for that house - a 2br apt is 10516379.4. CRAZY!!
Remember, on top of the 59K monthly, service charges and usual bills will add up to bring this to almost 65K! How much do you need to earn to pay 65K monthly consistently for 15yrs?
Pple will buy these houses - but for me it's just too much.
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Rank: Member Joined: 8/25/2010 Posts: 283 Location: Nairobi
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Vj wrote:I got in to the property development businees when things were still calm (around 7 years ago). From the way i understand the market a housing crash in the next five years is unlikely (though we may get a slight downward correction), the only situation i fear is a political crisis which can erode confidence. My reasons are as follows:
1) Kenyan banks are quite strict when it comes to lending 2) Quite a number of buyers are paying full cash for their homes (around 40% of my customers have not taken loans) 3) The middle class i.e proffesionals are increasing rapidly. 4) The culture of buying rather then renting is increasing. 5) There is alot of money coming from abroad
However i must say things are reaching an equilibrium. There was a time i sold entire projects on the blue prints, nowadays it is difficult to acheive that but 90% are sold before completion. The correction i anticipate is around 15-20%, i feel this is necessary to weed out some of the developers who have no clue about what they are doing and overally this will be better for the market. I echo your sentiments on the need to weed out the developers who have no clue about what they are doing. I personally believe they are responsible for the market speculations which has caused the current sky-high property prices. In other news... we have a client with land looking for a developer to partner with to put up a property along ngong road. email me on lkaptich@propertyzote.com for more details. www.propertyzote.com the ultimate ‘one stop online shop’ of choice connecting more people with more properties at the click of a button
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Rank: Member Joined: 9/25/2007 Posts: 96
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@sigiriri
I do not hold any brief for KCB but you may wish to know that if you factor in time value and inflation, the amount you are saying you will end up paying would be negligible. In any case, factor in the rent that you would be paying your landlord and you will see the sense of investing in brick and mortar. Besides, do not forget that the property shall also appreciate and not remain at Kshs 4.5m.
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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Guys guys, hold up, I still do not get the reasoning for a bubble burst in a city where 40% of property is bought cash!!!! A price correction , yes but very slight. Ile kitu iko is that rentals may come down once infrastructure is done such that I may prefer to move from Kileleshwa to Thika Rd ( also remember that rentals on Thika rd will also go up)so the differential may not be worth it. The guys who will be unable to service their mortgages will gladly sell the properties and make something from it. It is not like you wil have 10,000 units being sold at once. The main cause of a property burst is borrowers losing income such that they cannot afford to pay mortgages. This hapepned on a large scale in the 1990s due to the SAPs and alot of properties were sold off but was there a bubble burst even with the very small middle class that existed then? Guys let us speak with facts not feelings like modern day journalists. Most residential houses (Syokimau, Kitengela,Katani etc) are not being put up by mortgages but by loans from SACCOs, Unsecured etc, so the lenders have really no way of directly linking this to the properties. I Think Therefore I Am
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Rank: Member Joined: 6/21/2010 Posts: 514 Location: Nairobi
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Vj wrote:I got in to the property development businees when things were still calm (around 7 years ago). From the way i understand the market a housing crash in the next five years is unlikely (though we may get a slight downward correction), the only situation i fear is a political crisis which can erode confidence. My reasons are as follows:
1) Kenyan banks are quite strict when it comes to lending 2) Quite a number of buyers are paying full cash for their homes (around 40% of my customers have not taken loans) 3) The middle class i.e proffesionals are increasing rapidly. 4) The culture of buying rather then renting is increasing. 5) There is alot of money coming from abroad
However i must say things are reaching an equilibrium. There was a time i sold entire projects on the blue prints, nowadays it is difficult to acheive that but 90% are sold before completion. The correction i anticipate is around 15-20%, i feel this is necessary to weed out some of the developers who have no clue about what they are doing and overally this will be better for the market. @Vj,just to correct you a bit. Most guys buying cash are not buying for their personal and family housing but for commercial purposes. Most of these guys either rent them out or sell them to secondary buyers. The bubble will actually burst coz of these secondary buyers who buy from the cash buyers. Remember that the first buyers are in it for investment purposes and when reality hits home with the secondary buyers on what they can make as first buyers and affordable mortgage is out there in the market then prices will be downhill coz of oversupply. 'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary
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Rank: Member Joined: 6/26/2008 Posts: 319
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@Evolve - the theory of value adjustment and time value of money is well understood.
I love to challenge the mind. Hypothesis - I take the 4.5 and invest in a business today - exposure to risk much like housing is exposed to the imminent collapse. I double the capital in 3 years and pay myself a decent salary while investing more in the bizna. I rent a hse - max 20K (hata kama ni utawala ama ruai. 15 years later, with all factors considered, will I be able to buy the same house in cash at whatever it's value will be? Will the business still be there? So - the mortgage guy has had this heavy burden and has not been able to set up or grow his/her biz as much. Which is the better option? Of course rent went up also in the same duration...
Remember guys, I am just raising dust here - let's hear ur thoughts.
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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@Sigiriri When you consider business, always rememner that the possibility of losing the money is alwaya higher than that of making money. Otherwise no one would be employed. As one gets wiser, they realise that there is more to life than the next penny. At that point, passive income is King. I Think Therefore I Am
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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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Evolve wrote:@sigiriri
I do not hold any brief for KCB but you may wish to know that if you factor in time value and inflation, the amount you are saying you will end up paying would be negligible. In any case, factor in the rent that you would be paying your landlord and you will see the sense of investing in brick and mortar. Besides, do not forget that the property shall also appreciate and not remain at Kshs 4.5m. I hear you... but look at it this way.... in 2009, i invested in a property at 1.6m. Right now, the value is double that. In the same year, another lady bought her house at 4m (same area). Last month, she was offering me her house at 4.2m after making some improvements like putting up a tank, doing the drive way etc and to use her words "halafu utaona ni nini unaweza kuniongeza juu kwasababu ya hii developments"... as in, i was at liberty to say "i am paying 4.2m period"..... my point is, the appreciation of these two properties vs the capital injection is very different. Actually, i would go for an empty piece of land anytime than a house...... It will fetch me much better returns in the end. For a house, i would go to building my own without credit if possible...... (in some economies, this would be absurd but in kenya, i think its much better)..... by the time i am done building, the house value doubles....
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Rank: Veteran Joined: 4/16/2010 Posts: 906 Location: Nairobi
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Rank: Member Joined: 6/21/2010 Posts: 514 Location: Nairobi
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Watched JM yesterday on money matters and i realised that they already have a strategy to infiltrate the mortgage market. These guys have created an axis of HFCK (the mortgage provider), Equity bank (the fundraiser) & Britak (the developer). Looking in closely Equity is a majority shareholder of HF while JM & Peter Munga(read equity) are large shareholders at Britak. According to Britak's MD the IPO is not for cashing out but rather to develop & grow their businesses & that they are looking at growing their 'real estate development business.' With this new axis, a burst is imminent. 'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary
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Rank: New-farer Joined: 6/3/2010 Posts: 96
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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@Papa, The property may actually be very well priced. You see, it is not the house that is for sale but the potential of what you can make of it. If you buy the property ( i.e land in location) what can you do with it? if you put up a six storey flat with shops in the ground floor, you should recoup your money in the next seven years max. So it depends on how you look at it but it is definetely not a place to buy and live in. I Think Therefore I Am
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Rank: Member Joined: 6/28/2007 Posts: 38
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Property prices are heading in a very tough area in the old days say 5years ago a flat fetching rent of 20k would be worth say 1.7mln now the same house fetching 20k rebt is now worth 4mln is this making sense to anyone ? Buying a nw prpoerty of 5mln needs 60k instalment ever month and if you rent it you will get 30 k so in short proerty prices are now showing a negative cash flow ,buying properties on a negative cash flow will only lead to misery and ruin i thot someone will speak out UN PACTUM UN DICTUM
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Rank: Elder Joined: 1/21/2010 Posts: 6,675 Location: Nairobi
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stocksguru7 wrote:Property prices are heading in a very tough area in the old days say 5years ago a flat fetching rent of 20k would be worth say 1.7mln now the same house fetching 20k rebt is now worth 4mln
is this making sense to anyone ?
Buying a nw prpoerty of 5mln needs 60k instalment ever month and if you rent it you will get 30 k so in short proerty prices are now showing a negative cash flow ,buying properties on a negative cash flow will only lead to misery and ruin
i thot someone will speak out @stocksguru7 stop hating on capitalism... As long as demand for housing continues to rise and there is limited supply prices will go even higher than they are now... We will be all paying 120k installments and 60k rent for those apartments your talking about and hamtasema chochote... Mark 12:29 Deuteronomy 4:16
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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stocksguru7 wrote:Property prices are heading in a very tough area in the old days say 5years ago a flat fetching rent of 20k would be worth say 1.7mln now the same house fetching 20k rebt is now worth 4mln
is this making sense to anyone ?
Buying a nw prpoerty of 5mln needs 60k instalment ever month and if you rent it you will get 30 k so in short proerty prices are now showing a negative cash flow ,buying properties on a negative cash flow will only lead to misery and ruin
i thot someone will speak out @ Stocks, Why make the assumption that someone buys to rent? Most guys who buy houses in Kenya, over 90% actually live in them.So the rental income is the furthest thing on their minds. Those who are focused on renting normally build and it works out to about 15-25% returns p.a I Think Therefore I Am
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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Clearly there is a lot of misinformation on this topic. I totally agree that the price of property is ridiculous but I disagree there is a bubble. The factors driving up the prices of property are many. Urbanization is the main contributing factor. With every one moving to towns the need for housing grows with the population increase. The growth of towns is not linear and housing can only grow in a linear fashion which is way below the population growth. Youth bulge falls under the urbanization umbrella and they require housing and amenities. The youth bulge also come with able bodies persons who can contribute labour and brains to grow the economies that will support their consumerism mentality.
Kenya is currently in a situation where demand is high, a youth bulge that might finally create a significant middle class and is able (maybe not capable) to generate wealth. This is only the growth spurt. Is there a correction in the offing. Maybe but the correction is small and might only happen in the executive range apartment houses(>10 milli) and poorly serviced and highly priced area. Middle class and low income housing WILL NOT HAVE A CORRECTION!
There are too many opportunities in the property sector and if Nairobi is too rich for you look at other towns because this is happening in Nairobi and all other towns albeit in a smaller scale.
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Rank: Member Joined: 11/6/2006 Posts: 276
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@ wendz - you will pay 60k every month for the next 15 years.. constantly and you will have ownership if you rent @ 20k..it will go up every year by 2.5% compounded so in 15years you rent will be 40k and you will own nothing..
but i think you have understated the rent... a house that draws a 60k mortgage should get you at least 30k rent... and i have tested that scenario across town and it works
and apart from the ownership you will have the best hedge against inflation...
the houses for buru V were approx 400k in 1980s drawing a mortgage of about 2k per month.. my mum thinking like you refused to buy..
now that house is worth 4.5 m..
most of the guys redeveloping their plots in kilimani, kileleshwa bought their half acre homes for between 0.5 - 1.0 million in the 80s.. those parcels are now going for 50,000,000..
do you need more examples?
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Rank: New-farer Joined: 6/3/2010 Posts: 96
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buying for renting gives pathetic rental yeild....however buying for capital gains of middle level housing with rents helping manage the mortgage payments still make economic / cashflow sense...
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The Housing Bubble in Kenya will Burst very soon....
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