A market in recession

Building lavish estates and luxury expensive apartments have now become a losing investment as Kenyans try to adjust to the tough economic situations and the real affordability of the middle class which was overrated in the past



or the past two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s Gross Domestic Product (GDP), which grew steadily over the years till 2016 when the sector contributed 13% to the GDP. Iconic high-rise buildings dot the skylines across the country, and large-scale mixed-use developments are being developed to serve a myriad purpose. 

This amazing course showed signs of a reverse trend from the beginning of 2017 with the sector’s contribution to GDP declining to 7.1% that year.  Kenya’s real estate sector contribution to GDP declined marginally by 0.1% to 7.0% in 2018. The industry recorded a slowdown in growth rate by 2%, managing to grow by only 4.1%. Some areas seem to be under more pressure than others. According to KNBS data, the value of private building plans approved in Nairobi County decreased by 12.7% from Sh240.8b in 2017, to Sh210.3b in 2018.

The year 2019 was not different. Real estate remained under huge pressure and there was no doubt that the market is not under a correction period but rather facing a recession.  This follows the long running oversupply in most segments of the industry, especially in high-end locations where most of the capital packing has taken place. The surplus has forced many investors into a halt, to allow for market correction as occupancy in the commercial office and residential have come under pressure from lack of tenants for more than 24 months now.

According to Kenya Bankers’ Association’s last House Price Index report, the third quarter of 2019, was characterized by continued decline in the rate of growth of house prices. According to the Kenya Bankers Association – House Price Index (KBA-HPI), house prices declined by 2.28% during the quarter compared to a 1.72% decline in the second quarter and to 2.78% decline in first quarter of the year.

The numbers are disappointing but the reality of the matter is even worse. Real estate in Kenya has seen a number of changes in property prices, supply and demand and now the center of interest seems to be the ever-common affordable housing project which has been the talk of the town. Although affordable housing is a good solution for the middle class of Kenya who have limited resources, it does not give any solution to all those who have invested directly or indirectly in the property market, both in the commercial and residential sector and have to now face delays and potential big losses and have no way out of this market.


It has always been in the center of interest of Kenyan investors. The moto “You cannot go wrong with land” has been dominating Kenyan investor’s attitude. Of course any overinflated and overvalued asset had plenty of space to go wrong and negatively surprise those who were in denial of the market reality.

In 2019, demand for land started low in Q1, doubled in Q2, went down in Q3 and got worse in Q4. According to available statistics and reports, land returns have gone up within the last decade compared to other assets like equities and government bonds, which make land the top investment bet. In some areas price growth has been beyond any possible expectation. Still land, like any other property asset, is subject to market trends and prices can go up very fast as well as can go down. 

One of the issues that people have to face in Kenya is the market inefficiency. There is a huge disparity between the value of land online vs. value on the ground vs value at the land office. The data is very hypothetical and lacks transparency. With more data, buyers and sellers can make better decisions when investing in land. In several areas land values are very flexible. They are going down in various nodes by 25%-30% and in some cases by 50%. At the end of the day, there will always be someone willing to buy the land for a specific amount of money that he/she will consider to be a good bargain and not always a fair value.


The residential sector has been growing fast for almost ten years. Property prices have now entered levels that are outside the demands’ affordability. The capital city of Nairobi is now an option only for a few. Finding affordable property in the capital is a utopia. The worsening economic state is leading home seekers to remote areas and satellite cities or even considering the option of cheap rent rather than buying.  The average price of a house in Nairobi reached the amount of Sh32m in 2019 and the price of a four to six bedroom Sh39.1m, while a one to three bedroom is Sh15m according to available reports. There is no way that any middle class family will ever be afford to buy even a small apartment in the capital. 

This is where affordable housing is coming in to the game. The problem is that affordable housing will put extra pressure to the existing stock of properties as demand will turn towards this more affordable option and will drug down the prices of the current available stock. 

People believe that since the population in Nairobi is growing the market will be able to survive and continue growing. Population is important when combined with the affordability and the real needs of the people.  The government is working towards providing more affordable housing. Even developers are now turning towards this type of development. Time has come for everyone to realize that the 200,000 housing gap was targeting this group of people who need a shelter to live with their families and not expensive properties in Kilimani or Upper Hill. The market has clearly shown that this is the current trend as the property prices keep dropping over the last three years consequently. 


In the fever of real estate investing, Nairobi has been oversupplied with commercial properties. A huge percentage of them remain vacant for several months and in some cases years. Shopping malls/commercial spaces are posting huge losses with an ongoing oversupply. This is forcing landlords to cut rental charges to retain existing tenants. Crazy unbelievable offers are now available in the market and investors are writing losses while the NPLs of the sector are increasing fast. All market analysts expect this trend to continue.


The market has to face several challenges, including delays in processing construction permits, an oversupply of property, limited access to cheap finance and slow private sector credit growth. The future of the market seems to be in areas such as affordable housing, but the existing property sector is in a recession with a steady decline in prices and increasing vacancies in the housing stock. Tourism as well as foreign trade are experiencing job cuts, low profit, hiring freezes and near stagnant wages. The new upcoming middle class seems to be under a lot of pressure and limited affordability. 

Building lavish estates and luxury expensive apartments have now become a losing investment as Kenyans try to adjust to the tough economic situations and the real affordability of the middle class which was overrated in the past. In the last almost 18 months, developments in the satellite towns are outperforming those in the capital of Nairobi, based on affordability. The whole concept of a market that was targeting huge profit margins has been proven completely wrong and is now causing big losses to small and bigger investors. 

This year is not expected to be any better. Kenya will have the next General Election in 2022. Clouds of political turbulence are making their debut and this is not going to be helpful for the market

Developers and property market investors should target volumes rather than big margins. This will lead to sell more units and avoid ending up with empty properties and going on a loss. This wrong approach of the market’s affordability and dynamics in the last years created the existence of a huge supply in the property market because people are not able to afford what’s available. Unfortunately, those who have already invested in this overinflated market are facing losses and this seems to be an irreversible trend.


Anyone who understands basic economics could clearly see what was happening in the property market of Kenya since 2014. A market that was abused by those who wanted a vehicle to “clean” money of unknown origin, and a toy in the hands of skilled manipulators absorbed huge wealth from most Kenyans, directly or via investment groups, chamas and Saccos. Over the last few years, we have witnessed several property companies, chamas and Saccos going down producing billions of losses to the small investors who trusted their monies to them. A market lacking the fundamentals for such a huge and fast growth like the Kenyan market will continue to lose monies invested till it will reach a new equilibrium where the real market fundamentals and the real market dynamics will be met. 

This year is not expected to be any better. Kenya will have the next General Election in 2022. Clouds of political turbulence are making their debut and this is not going to be helpful for the market. I suggest to follow up carefully all the local and international developments as Kenya’s economy is very fragile and subject to local and international developments. 2020 is a year that seems to be full of unpleasant developments around the world. Be rational and ready to act. 

REV Valuer – Tegova Civil Engineer Msc/DBM Managing Partner Avakon Ltd

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