By Kosta Kioleoglou Although numbers do not lie, sometimes the market trend is not as crystal clear. Reading the latest available reports on Kenyan economy and the real estate sector, I really find it hard to get a clear position on the status of the market trend. The reason is that it’s towards the end of 2016, and despite a lot of predictions, the Kenyan Real Estate Market seems to have enough strength to resist both local as well as global economic turbulences and market shocks. On the other hand, it is not exactly outperforming. That is what makes things complicated. The market has been stagnant for the last year if not for more, while the public belief is that the market is booming and there is huge potential for the near future. Despite the Brexit shock, the US elections, the war in Syria, the extensive terrorism around the world and it’s impact on world tourism, and the oil prices which have been moving up and down over the last year, Kenya seems to be able to make it through the 2016 storm with minimum damage and in some cases even stronger. After such a hard year, one should expect the market to face serious problems and the public opinion to be less positive about it. In reality though, the general belief is that the future of real estate is bright. Before we continue with the real facts and analyze the numbers, it is important to remember that elections and referendums tend to provoke a ‘wait-and-see’ approach in the minds of buyers and investors. Although the US elections have just been concluded, surprising everybody with the results, we have elections in France and Germany coming up shortly, the continuation of the Brexit story and of course, the upcoming elections in the country. A few days ago, the Kenyan Bankers Association released the House Price Index for 3rd Quarter of 2016. According to the HPI report, the overall house price changes during the third quarter of 2016 represented sustenance of the upward trajectory. The Kenya Bankers Association – Housing Price Index (KBA-HPI) indicates a 2.2% rise in house prices from those of the previous quarter. Notably, the third quarter price changes represent a faster movement compared to the previous five quarters where they were consistently below 2% and therefore signaling a sense of broad stability. The relatively stronger surge in the third quarter does not undermine the overall gradual rise, with the overall house prices having risen by 13.05% since the KBAHPI base period of the first quarter of 2013. This is a fact that we will analyze later. Even with a relatively faster growth in house price during the third quarter of 2016, the demand and supply market dynamics have not been subject to significant changes over the period. The supply of housing units has been in response to the broad demand characteristics in the market as reflected in two factors according to the report. One, the new units being put up in the market are mainly targeting the middle end of the market, with the lower end experiencing supply constraints arising mainly from the tendency of developers inclining more towards renting than selling. This has been evident even in the opening up of new geographical areas for housing development in response to physical infrastructure expansion, especially transport. And two, the support of the financial sector generally and the banking industry in particular towards home acquisition has been enabled by a generally stable macroeconomic environment. I have to make two comments on the above. First, there is a huge house deficit in Kenya, maybe even bigger than what the reports suggest, but it is vital to understand the type of housing that is needed. Affordable houses for the low and very low end of the market are the kind of houses needed. They are almost not available in the current market with investors and developers focusing on the middle to upper market, creating sometimes over supply for this sector of the market. Secondly, I have to say that in Kenya, the banking system remains continuously away from the real estate market. With the number of mortgages ranging from 24,000 to 25,000 in total, it is obvious that the banking and financial sector, despite the generally stable microeconomic environment, is not willing to provide easy and affordable finance to buyers. Like the first and second quarters, there has been a sense of taste consistency amongst homebuyers. The price movements during the quarter continued with a limited change in preference. Characteristics during the third quarter of 2016 were reflected in the influencers of price movements remaining to be the size of the house (as measured by plinth area, number of bedroom, bathroom, and presence of detached staff quarters). The search for secure neighborhoods with adequate amenities influenced the price movement dynamics during the quarter. Thus, houses in gated communities – often highly priced given the superior ambience associated with controlled development, security, privacy and scenic value – were key influencers of the overall price movements. Similarly, proximity to social amenities such as shopping malls, tarmacked roads, schools, hospitals and presence of parking lot among others significantly contributed to price rise in the quarter. House market takes an upward trend across all sub-regions. REGION 1: 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. REGION 2: 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. REGION 3: 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. The market however seems skewed in terms of the regions and the type of the house with apartments’ transactions being more on the lower and middle market end. Maisonettes and bungalows on the other hand seem to be concentrated in the upper end market. This speaks to the developers’ appetite on the type of the houses they put up in specific regions as being influenced by affordability as well as the type of the clientele in the region. The rising middle class in Kenya can be deemed to have more preference for apartments, which are likely to be more affordable as compared to maisonettes and bungalows in the meantime. Although we have data about the type of houses – properties that the buyers prefer and the reason why, plenty of what we are reading is about the asking prices, what is not available as data is the number of vacancies by type of property and area as well as the average time for a sale or to find a tenant for renting. We do not have data on how many thousands of properties remain vacant, for how long and no comments on the number of properties sold currently off plan. What I do know is that at least for Nairobi and Mombasa, it is obvious that we can see the number of empty properties rising while more buildings are coming up. Since we do not have the data, I cannot analyze further but I can use common sense and say that something is not going very well as we tend to believe. So, what is the status of the current market? Is this a bull or a bear market? Is this a market for sellers or for buyers? Or maybe, is this a tricky market? Well, I am afraid that all of the above can be right as well as they can be wrong. Depending on which aspect one is looking at; the market, location, type of property, size, use amongst other criteria, this market can be seen as bullish or bearish. So, I will go with the term; tricky market, where we need to be very skeptical and careful. Perusing the House Price Index, third quarter of 2016 data, I have to say that I personally remain extremely skeptical about this property market. I need to explain that there are several ways to see and analyze a Real Estate Market. The first and most common way is to analyze the market from the point of view of someone who is thinking to buy a house for his family. On the other side there are those who are looking at Real Estate market as an investment option, to produce wealth. The way the Property market in Kenya has been performing over the last few years, my suggestion to someone looking to secure a house for his family would be that although this is not the ideal period to buy a house, still the conditions are quite fine despite the fact the prices are already on the high end. The family and personal factors are playing a key role for such a decision, which is balancing any existing negative factors. So, if you can afford to buy a house without getting any bank facility (adding extra “weight” to your purchase), as long as you are not using this purchase as a financial investment but more like an investment to your family’s needs, then please go for it. Of course depending on the type of property you are looking into buying, make sure you negotiate very well as prices in most cases are extremely leveraged and you need to get the best possible deal. That was the easy advice. Now, if you are interested in make an investment that will give you back good returns, that is another story. When making an investment decision, there is no space for feelings but plenty of room for numbers. We need to see all possible alternative options before we make any investment and jeopardize our capital and our future. It is very important to be able to read the numbers, understand the terms and be able to make right choices. Investing is not easy and requires specific knowledge and a lot of information analysis in order to be successful and minimize the possible risk. Because despite the general belief in this country, real estate and property do include a lot of risk and yes you can go wrong with land as well as with any other property. According to the Kenya Banker’s Association latest report, the overall house prices have risen by 13.05% since the KBAHPI base period of the first quarter of 2013. It means that on average, if you had invested Sh1, 000, 000 in January 2013, today your capital would represent a value of Sh1,130,500. In 45 months, your investment has produced Sh130, 000. As you noticed, I did not use the term profits. The reason why is simply because the value and the buying power of Sh1, 000, 000 back in January 2013 was much bigger than the buying power of Sh1, 130, 000 in September 2016. With an average inflation rate of over 6% per year over the last 3 years (respectively), we have an accumulated inflation for the same period (the 45 months) of over 20%. That means that whatever you could buy with Sh1, 000, 000 45 months ago, today you need at least Sh1, 200, 000. Actually your buying power is approximately less by Sh70.000. In other ways, your investment is costing you Sh70, 000 instead of making you any profits. At this point, we need also to consider another basic element of investments. The lost opportunity cost. Simply, what else could you do with your capital for the same period, similar or less risk and compare the returns. To keep it simple, I would suggest to go for one of the safest options in Kenya. Suppose you had invested your monies in Treasury Bills or Treasury Bonds. A T-Bill, is a paperless short-term borrowing instrument issued by the government through the Central Bank of Kenya to raise money on short term basis, which is a period of up to one year. Treasury Bonds are similar (but not exactly the same) to treasury bills but for longer periods. These options could have easily produced for you an average of over 10% for the same period, per year. Your Sh1, 000, 000 without even capitalizing on the annual returns would have been Sh1, 375, 000 over the same period of time. It is easier for you now to make the comparison and realize how lucrative it is, or is not, the property market from an investor’s aspect and view. We only used the simplest option to invest. Obviously there are several other ways and options to invest your monies inside or outside Kenya in several different sectors. With this example I am not suggesting that you should invest in treasury bills, bonds or anywhere else. I just wanted to give you a good example of how you should think and analyze the data you have before you make any decision for an investment. It is obvious that it takes more than a few words for someone to explain even the basic principles of investing. At least you should always consider your options and the risk involved as well as the liquidity. On the Kenya real estate market overview for the Q3 as well as the property market performance of the last 3 years, I will repeat that there are no rules, only lots of exceptions. I am sure that you might know someone who made good money during this period. Before you take things for granted though, take a moment and think if this is the rule or the exception? I would like to repeat that buying a house for family goes far beyond the investment rules. If your main objective is to secure a nice house for your family then make sure you negotiate well and get a good deal as this is more a ‘Buyer’s’ market than is a ‘Seller’s’ market. Do your homework, a lot of research and if needed, take some professional advice. Spending a few shillings on the right people could save you a lot more. Finally the upcoming elections do have a great effect on the real estate market and the more we get closer to the election period the more ‘tricky’ the market becomes. Approaching elections, usually we expect the market to pause, or slowdown and depending on the results, we shall see the way forward. Everybody needs to be extremely careful during this period, which tends to provoke a ‘wait-and-see’ approach in the minds of buyers and investors. Bearish, Bullish or Tricky, the Kenyan real estate sector plays a key role on the country’s economy. It is one of the most serious factors that affect the country’s economic data representing almost 10% of the GDP and deserves to be treated with a lot of consideration and seriousness.