Until last week, Kenya had waited seven years for the issuance of the Eurobond in its account with the Central Bank of Kenya. As an alternative to financing government projects, the Eurobond is set to have a positive impact on every industry within the Kenyan economy.
The name Eurobond can be a misnomer to many and is sometimes misleading. From the word, you would think either Eurobonds were about the European bond markets or the European currency, the Euro. However, Eurobond has nothing to do with Europe or its currency. The term “Euro” in this context is simply used to refer to the international aspect of the bonds. A Eurobond is, therefore, a bond that is issued in a currency other than the currency of the country where it is issued.
Leading property portal Lamudi Kenya explores the potential benefits of the Eurobond issuance to the real estate industry.
Kenya has a huge infrastructure deficit from roads, railways, ports, water and energy. Eurobond proceeds will go a long way in accelerating growth in these projects. In the process, property investment opportunities will open up in many areas, especially commuter towns where the demand for affordable housing has skyrocketed.
These infrastructural projects require labor. A lot of job opportunities are bound to be created offering great income to invest in property markets due to this improved infrastructure.
At the moment, the domestic markets have been the biggest source of government borrowing. The current high domestic borrowing by fiscal authorities to finance the budget deficit increases the competition for funds and drives up interest rates. The government’s huge public sector borrowing, however, is normally insensitive to interest rates. As long as the government is willing to borrow and the Treasury Bill rate is attractive, local banks would have the tendency to channel funds into the risk-free Bills rather than lend to the real economy, unless borrowers are willing to pay high interest rates, planning to borrow less from domestic markets because of this new money from the bond proceeds.
Pressure will be placed on banks to lend the excess liquidity elsewhere. The extra supply of cash will, therefore, hopefully help to bring down bank lending rates to the productive sectors of the economy like the real estate market. Mortgage rates are expected to reduce, creating an opportunity for more home ownership.
Launched in 2013, Lamudi is a global property portal focusing exclusively on emerging markets. The fast-growing platform is currently available in 34 countries in Asia, the Middle East, Africa and Latin America, with more than 800,000 real estate listings across its global network. The leading real estate marketplace offers sellers, buyers, landlords and renters a secure and easy-to-use platform to find or list properties online.
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