BY LUKE MULUNDA
From Kenya’s capital Nairobi to the various counties, real estate remains an attractive investment to many. The demand for housing is growing with increased urbanisation and growth of devolution, yet the government has been unable to meet the annual housing requirements.
This has opened up business opportunities for private sector players, who are buying land and developing houses to cater to different types of tastes and budgets.
Investment analysts at Britam say Kenya’s real estate sector remains a central component of the country’s immediate and longer-term economic growth agenda, giving the sector a positive outlook. Growth in real estate has been fueled by strong economic growth and infrastructure development. In its latest report, Britam says, however, that the current investor sentiment in the sector is neutral in the election period. “Investors and developers are expected to adopt a wait strategy for new developments until the election period is over,” the analysts say in their January 2017 report.
Land prices on upward trend
According to analysis by Hass Consult, prices of land in Nairobi’s satellite towns grew by 21.4% by the third quarter of 2016, the highest growth since 2014. The increase was driven by Government announcement of planned infrastructure projects, especially the Standard Gauge Railway, the commuter rail and construction of the planned Western bypass in Nairobi.
Satellite towns with the most increments in the year to the third quarter of 2016 were Juja, Ruiru and Limuru with price growth of 43.1%, 42.9% and 34.9% respectively. These areas are appropriate for investors with an eye on speculation or building both residential and commercial properties.
The opposite transpired in satellite towns characterized by heavy congestion such as Ngong, where prices reduced by 2.3%. The drop presents an opportunity to buy land on the low and wait for appreciation or build flats, which are very popular in the area.
Land prices in Nairobi suburbs increased marginally by 1.4%, driven by road construction, such as the Outer Ring Road expansion and completion of the Southern Bypass. Donholm and Lang’ata were the best performing suburbs with prices growing by 9.3% and 7.7% respectively. Even with high prices, occupancy for flats and apartments are high in these regions and offers opportunities for those looking to build for sell or rent.
The risk of oversupply
Investor demand is expected to apply pressure on land prices in satellite towns – Kitengela, Athi River, Syokimau, Ngong, Juja, Thika, among others – which could lead to increased growth in prices. Developments are expected to increase and that could lead to stagnation of rental rates in the short to medium term. In Nairobi, low price increases are anticipated as investor speculation drops awaiting the elections.
Counties are opening up
In the counties, prices are expected to increase buoyed by investor demand as devolution takes shape, according to the Kenya Bankers Association Housing Price Index.
Its sub-regional indices show a preference for apartments in counties, which accounted for about 60% of the units sold during the quarter compared to 23% and 17% for maisonettes and bungalows. As it were, apartments are more attractive to buyers, because of prices and availability of amenities.
The price and buy determinants for houses remain size as measured by plinth area, number of bedroom, bathroom, and presence of detached staff quarters as well as parking and availability of amenities such as water or related investments such borehole.
Most buyers are searching for secure neighbourhoods with adequate amenities. Thus, houses in gated communities – often highly priced given the superior ambience associated with controlled development, security, privacy and scenic value – will dictate price movements.
Similarly, proximity to social amenities such as shopping malls, tarmacked roads, schools, hospitals and presence of parking lot among others significantly contribute to the price of houses.
Demand vs price: The hot spots
There is strong demand for exclusive suburbs that are less built-up over suburbs that have high-density developments. Muthaiga leads the pack in suburbs that recorded double-digit increases in asking property prices, at 15.8%, followed by Kitisuru at 14.2% and Lang’ata at 13.5%, Hass Consult analysis shows.
Detached houses, which are mostly found in low density suburbs, recorded the best performance in 2016, posting an annual 11.3% increase in asking prices, signaling that investors looking to reap from detached houses should look for less populated areas.
“Most of these suburbs are exclusively high-end and just like other markets globally, high-end areas tend to be least affected in a sluggish economy whereas the areas with middle market properties which in Kenya constitute property in the satellite areas generally witness a marked slowdown,” says Ms Sakina Hassanali, Head of Research and Marketing at Hass Consult.
Kilimani posted the biggest annual price drop of 3.5% due to the price correction of recently oversupplied large apartments, Hass reports.
Average asking property prices for satellite towns increased by 1.5% in the fourth quarter of 2016 and 8.6% over the year. Similarly rents increased by just 0.2% for the fourth quarter of 2016 and by 4% over the year.
Both sale and rental prices in satellite towns in 2016 have witnessed the lowest annual increase since 2008 attributable to the economic downturn that saw a cooling down of transaction numbers in these areas.
Satellite towns with high potential
Athi River, Mlolongo, Mavoko, Nakuru, Ngong, Ruaka, Syokimau, Embakasi, Kahawa
Wendani, Thika, Mtwapa, Utange, Kitengela, Kiembeni, Nyeri, Likoni, Eldoret, Ruiru, Kilifi, Thika road (Kasarani, Roysambu, Ruaraka), Meru, Bungoma.
Suburbs with high potential
Thindigua (Kiambu Road), Kiambu, South B, South C, Kabete, Komarock, Imara Daima, Membley, Buruburu, Rongai, Waiyaki Way (Uthiru, Regen, Kinoo, Kikuyu), Mbagathi road, Ngong Road, Langata.
High-end suburbs with high potential
Kileleshwa, Kilimani, Lavington, Westlands, Spring Valley, Riverside, Milimani (Kisumu), Milimani (Nakuru), Runda, Karen, Garden Estate, Parklands, Ridgeways, Muthaiga, Loresho, Kitisuru, Adams Arcade, Nyali, Mountain View, Nyari.
– Source: Kenya Bankers Association Housing Index