Nairobi real estate market to stabilise through 2018 after elections
By David Indeje / September 4, 2017
A constrained Nairobi Metropolitan Residential market suggests it will stabilise through 2018 after the elections period, according Cytonn Investments.
Nairobi Metropolitan Residential Report 2017 themed “Pockets of Value in the Face of Declining Performance”, released on Monday states that, “However, there will be price stagnation in selected markets with surplus supply. Investors therefore need to invest in proper market research and trend analysis to identify specific market niches.”
According to the report, the constraint is attributed to negative political sentiments as investors’ preferred short term investments compared to long term investments such as real estate.
The report also notes that the opportunity in the residential sector lies in specific submarkets that have higher uptake and returns to the investor.
“For apartments, the best opportunity is investment in areas such as Ridgeways, Kilimani and Lang’ata driven by returns, uptake and state of infrastructure. For detached units, the best opportunity is in areas such as Juja and Runda Mumwe driven by uptake and the market returns to an investor.”
The report pointed out that the most attractive areas for development are Thindigua, Ridgeways, Lang’ata and Juja which delivered total returns of 19.3 percent, 18.4 percent, 17.4 percent and 17.3 percent, respectively.
This is mainly as a result of proximity to high end suburbs for Thindigua and Ridgeways, proximity to the Central business District (CBD) and other business nodes for Lang’ata and low supply of residential units and lower prices for Juja.
Speaking during the release, Cytonn Investments Chief Investment Officer, Ms. Elizabeth Nkukuu, CFA, noted that, “Real estate continues to deliver attractive returns for investors, when the public markets are delivering average returns, while also being a hedge against inflationary pressures.
Development of residential real estate continues to provide attractive returns, while delivering housing to combat the housing deficit of 2 million units, which grows by 200,000 units per annum. The key drivers for the increments in house prices for the best performing zones prices have mainly been high demand in the areas, ease of access from the CBD and other business districts, and lower prices compared to houses in other similar nodes.”
According to the report, on average prices increased by 3.8 percent in 2017 compared to a 7.4 percent increase in 2016 while rental yields remained fairly stable averaging at 5.6 percent in 2017 compared to the 2016 average of 5.2 percent.
Head of Private Equity, Shiv Arora, noted that, “The continued price appreciation, though subdued, and higher rental yields indicate sustained demand for rental housing whereas demand for housing for purchase slowed down.”
The report was based on research conducted in 35 submarkets in the Nairobi Metropolitan Area, and is a follow-up from the 2016 Report.