Kenya to get first real estate index      

Written by Morris Aron   

Kenya's first property index is nearly complete. The Kenya Real Estate Index (KREX) , set to debut on the property market in two month’s time, will be used to determine the level of transactions in the real estate sector.“We have formed a technical working group that is going to formulate a work plan on how the index is to be introduced to the market,” said Mr Alister Murimi, the chairman of a group spearheading research and creation of the index.The group is charged with developing a procedure of introducing KREX into the market, which has suffered for lack of clear statistics and indicators on housing prices and sales among other areas. Mr Murimi said they were at the “most critical stage of the whole process.”

The index, which will rely mostly on macro-economic indicators to determine the level of activity, will also take into account transaction costs on land and buildings, investment levels in new construction, void or occupancy rates and open market and forced sale values. According to the working committee, the KREX will indicate income returns, capital growth and income growth, which were the top three expectations of respondents to a market survey the group carried out in 2005.

Other information includes operating cost and zonal values. Need for a property index arose two years ago, after an exploratory report identified real estate as the preferred choice of investment in Kenya. According to the survey, 43 per cent of Kenyans have investments in commercial property, which was the predominant form of property investment, outstripping residential and agricultural real estate.Over 95 per cent of individuals and institutions were positive on the need for a property index, and 78 per cent of them in favoured of a nation-wide index.

But despite its popularity, the project only received Sh2 million in funding from mortgage lender Housing Finance. Upon its introduction, the index will be tested in the market for several months to establish its level of accuracy, and necessary adjustments made before being allowed into the market.
“The index will be on trial for six months in order to judge its effectiveness in reflecting market changes accurately,” said Mr Reginald Okumu of CitiVillas who conducted the exploratory survey.

Property managers and agents have mainly relied on internal market research to determine the actual level of activity in the market. Such research has been accused of bias and setting a highly differentiated pricing for properties that are otherwise classified in the same zones and categories.

Research by Business Daily has shown that a three-bedroom apartment in the upper middle income group could have a sale price differentiation of up to 25 per cent from a similar property in the same area. The index will be available in the form of a newsletter in hard copy and in electronic format. “Such an index will streamline operations in the property market,” said Mr Reginald.

(c) Business Daily (www.bdafrica.com)