Private sector credit to real estate grew 2.7 per cent during lockdown

Private sector credit to the real estate sector grew from 2.2 per cent to 4.9 per cent between March and June 2020,  according to the Kenya Financial Stability Report by the Central Bank of Kenya (CBK). 

However, private sector credit growth in the building and construction industry declined from 9.5 per cent to 4.6 per cent during the same period.

Trade, Households, Manufacturing and Real estate, which are key to the overall economy and stability of the financial sector accounted for the most credit.

The report states that activity in the real estate sector declined in 2019 with subdued demand for property occasioned by slow economic growth, especially for middle and high-income earners.

The report also highlights measures deployed by the Government and the financial sector regulators, in collaboration with key stakeholders to contain the spread of the disease, improve the households livelihoods and firms incomes and foster financial system stability.

Contain spread 

The global output growth decelerated to 2.9 per cent in 2019 from 3.7 per cent and 3.8 per cent in 2018 and 2017 due to trade tensions, geopolitical conflicts and decline in commodity prices.

In 2020, the global economy is projected to contract by 4.9 per cent as a result of Covid-19 pandemic that tightened financial conditions and disrupted global supply chains.

The Hass Consult Limited All Property Index shows that property prices declined by 3.5 per cent and 1.2 per cent for sales and rental prices in 2019 compared to 1.9 per cent and 1.6 per cent increase in 2018, respectively.

Supply and demand for property has undergone significant volatility over the past few years resulting from slow economic growth, general elections uncertainties, banking industry instability and interest rate controls that constrained lending to the real estate sector. 

The Institute of Budget and Devolution has advised that the government needs to set aside at least Sh50 billion to breathe economic life into the housing sector following depressed activity over the past three months.

Elias Mbau, the institute’s director, said the country’s projected economic growth rate falls short of what the institute considers to be ideal (six per cent) for sustained demand, good cash flow and less pressure on credit markets.

The institute proposes the establishment of a revolving fund over the next two financial years to give zero-rated interest to housing cooperatives and provide heavy tax subsidies for the private sector if the government is to realize the affordable housing agenda by 2022.