Kenyan Real Estate Bubble

Topics: Real estate, Mortgage, Property Pages: 3 (954 words) Published: June 18, 2013
Is there a real estate bubble in Kenya?
Recently in the Standard Edition, a report by the Central Bank and World Bank said that only eight per cent of Kenyans - 320, 000 households - can afford a mortgage and that nine out of ten Kenyans cannot afford to buy the houses they live in, even with a mortgage loan in tow. The report also indicated that for one to buy a house worth Sh2 million, for example, one must have a net salary of Sh100,000 and service the loan at Sh42,000 a month for a period of 15 years at an interest rate of 14.5 per cent. This came as shock since, although the total mortgage loan book in the country is approx. 16,000 accounts, the value of mortgage loans (as at the end of last year) totaled Sh.133.6billion. This can be attributed to the rapid increase in the price and rent for property in Kenya. This indicates that buying property in Kenya is predominantly for the rich, who opt for cash sales as opposed to mortgages. This paper seeks to determine whether there is truly a real estate bubble in Kenya, and what do we expect as a result. According to Wikipedia, “a real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline”. Some common indicators of a real estate bubble are listed below:  Increase in house prices that are not being driven by fundamental factors such as income and population growth.  The areas of the country in which house prices are increasing, are large enough to have a major impact on the national economy.  a rise in housing ownership that is not supported by a rise in incomes, which means either that buyers are taking advantage of low interest rates (which must eventually rise again as the economy heats up) or that home loans are awarded more liberally, to borrowers with...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • China’s Real-Estate Bubble Essay
  • Real Estate Bubble in China Essay
  • Essay on China Housing Bubble
  • Chinese Real Estate Bubble Essay
  • The Chinese Bubble Essay
  • Chinese Property Bubble Burst Essay
  • Essay about Mitigating Bubbles and Crises
  • Policy and Regulations on China Real Estate Investment Essay

Become a StudyMode Member

Sign Up - It's Free