- More people taking on more debt.However, in Kenya today, the key constraint is access to credit as the government is crowding out the private sector given the 2016 interests rate cap law. For instance, mortgage accounts were reported to have decreased by 1.5% by December 2016 to 24,085 from 24,458 the same period in 2015,
- Relaxed lending standards.Despite the Kenyan government lowering interests rates, institutions have tightened their credit supply to the private sector, especially for long-term loans such as mortgages, as evidenced by the slowdown in private sector credit growth, at 2.0% in October 2017 compared to 4.6% in October 2016 and 19.5% in October 2015,
- Historically low interest rates. From the US, interest rates declined to below 7%. In Kenya, The Bank Amendment Act of 2015 capped bank lending rates to a maximum of 14.0%, which is 4% above the Central Bank Rate that has remained at 10% throughout 2017,
- The key indicators of a bubble are:
- High demand from high levels of speculation. Unlike in a bubble where most of the demand is driven by speculators, in Kenyan the demand is driven by real demand which is estimated to be at least 200,000 units p.a.
- Incredible rise in house prices. A housing bubble is characterized by most often than not, a triple digit growth in prices and as per the IMF standards, the decline in a bust must be at least 14% over a period of 16 quarters. In Kenya however, the prices are growing, albeit softening, with 2016 recording an average appreciation rate of 7.4%, which slowed to 3.8% in 2017, as per the Cytonn Residential Report 2017.
Kibunyi, Duncan & Ndiritu, Simon Wagura & Carcel, Hector & Gil-Alana, Luis. (2017). Real estate prices in Kenya: is there a bubble?. Journal of Housing and the Built Environment. 10.1007/s10901-017-9541-x.