Falling rental yields are a sign that things are set to become a little stormy for developers who invested in high-end apartments — since it will take them a longer time to recover capital invested into a property. In addition, more developers who took mortgage loans to build rental properties have to dig deeper into their pockets to top up their monthly mortgage payments.
This is commonly refereed to as negative equity, and it occurs when property prices appreciate quickly over a short time but rents stagnate over the same period. The revelations are contained in the HassConsult Property Index, Kenya’s only report on real estate trends developed by HassConsult, which was released last week.
Prices doubled
The HassConsult Property Index third Quarter results indicate while property prices have doubled — or in some cases even tripled — rental income charged on apartments has remained more or less the same.
According to the HassConsult report, pricing in the residential housing market shows that property prices have risen 55 per cent in the past three years, while rents have risen by about 18 per cent over the same period — thinning out returns on investment.
The depressed rental yield is attributed to increased supply of apartments and townhouses in the past couple of years as developers rushed to provide high density housing to maximise returns, while buyers’ preference shifted to stand alone units.
Composers of the property index said that current lifestyle desires are fuelling demand for stand-alone houses, which reported the highest gains on both value appreciation and rent income since 2009.
Continued to widen
The findings also indicate that asking prices rose more slowly in the first quarter of the year than in the final quarter of last year, but the gap between asking and closing prices continued to widen, driven by ambitious pricing of apartments and maisonettes.
In addition, middle-income market villa sales recorded the strongest price rises of the quarter, while up-market villa prices were more stable even as the apartments and maisonettes rarely closed at asking prices.
The report also notes that the market is not supporting price rises in the apartment segment. On rent, the rental market remained depressed, with rents asked for townhouses falling notably in the first quarter , almost to the point ‘where we expect it will begin to discourage new landlords from entering the market,’ according to Farhana Hassanali, business development manager at HassConsult.
The firm also says that trouble lies ahead for the real estate market as a result of soaring land prices in and around urban areas. They say the current trends could leave the country’s cities with a ‘dead stock’ of outer-city apartments and maisonettes. The disparity in demand was already apparent, the agency reported. – The Standard.
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