In the coming months, Kenya’s real estate industry will fix its eyes on the country’s base lending rate, which is expected to influence future trends.

Besides determining changes in house prices, industry players say the rate will also influence property rents in East Africa’s largest economy.

Already, the Central Bank of Kenya (CBK) has cut the crucial benchmark interest rate from 18 to 16.5 per cent, and it is highly anticipated that this will be followed by further reductions in coming bi-monthly meetings of the bank’s specialised Monetary Policy Committee (MPC).

Farhana Hassanali-Hashmani, property development director at real estate firm HassConsult, says the reduction in the base rate will restore the interest rates to “a normal and viable level by global standards”, and stimulate more activity in the building industry.

According to the quarterly Hass Property Index, the rate at which rents are rising is 10 times what it was in 2010 and 2011, when it was static. The report attributed the sharp rise in rents to interest rates, rising property prices and inflation. Real estate has borne the brunt of high interest rates in Kenya in the recent past. Towards the end of last year, faced by high inflation and a weak currency, the CBK consistently increased their interest rate. At the July meeting of the MPC, the rate was slashed.

“If it takes many more months to see a further cut, we are not likely to see much new real estate activity before mid-2013 for completion by 2015, and we will have a near two-year hole in building progress,” Ms Hassanali-Hashmani told a media briefing in Nairobi during the launch of the Hass Property Index for the first quarter of 2012.

In a statement announcing the report, HassConsult said that there is need for the MPC, which sets the benchmark interest rate, to “work as rapidly as possible” to bring it down.

“In the absence of a rapid correction, we predict significant rises in both rents and house prices in coming quarters,” Ms Hassanali-Hashmani added.

Even as the industry watches the movements in the base lending rate, there is already relief over the cut by the MPC early this month.

“There are few industries quite as relieved as the mortgage industry by last week’s news of a final easing in the CBK base rate,” said Caroline Kariuki, managing director of The Mortgage Company.

Ms Kariuki said even before the CBK announced the reduction, mortgage rates were already going down as the “industry became more creative and focused on making home ownership products accessible.”

Ms Hassanali-Hashmani noted that even with the drop in interest rates and a further expected decrease, coupled with the shelving of many building projects, the trend will be towards higher house prices and rents before any relief is felt.