High interest rates and double digit inflation in Kenya are hurting the real estate industry, as developers and buyers struggle to meet financing requirements, a property pricing index firm said on Thursday.

HassConsult, which conducts the only property pricing index in east Africa's largest economy, said developers had cut back or postponed many new construction plans, ending a construction boom that had characterised the last decade.

A presidential election later this year or early 2013 is also unsettling some foreign investors, HaasConsult said, while developers were looking to foreign currency loans at more affordable rates.

Housing Finance, the only listed dedicated mortgage financier in Kenya, in September said the cost of construction materials had risen by some 40%.

Year-on-year inflation rose for 13 straight months to hit a high of 19.72% in November, before easing to 18.93% in December after the central bank raised rates aggressively, sparking a jump in commercial lending rates.

Commercial banks have been forced to extend repayment periods to avoid massive loan defaults.

Returns from real estate investment in Kenya outpaced those from investments in stocks and fixed securities over the last decade, a study by a Kenyan fund manager showed last year.

A growing middle class, mainly in Kenya's capital Nairobi, fueled demand for housing and commercial properties that had some analysts worried that a bubble was developing in the real estate industry.

Booming construction in city suburbs created thousands of new jobs, with developers encroaching onto farmlands, national parks and other public land, but all that is now under threat as the government has also moves to reposes grabbed properties.

Source: Reuters