Real Estate Sector Performance Slows in Q2, 2015

According to the Kenya Bankers Association Q2’2015 Housing Price Index released this week, there were signs of stagnation of house prices across the property market. This was reflected by slower increase in property prices, which grew by 0.2% in Q2’2015 compared to 2.8% increase in Q1’15.

This was also echoed by the Knight Frank Prime Global Rental Index report, released this month, which showed Nairobi’s rent increase was minimal at 0.7% compared to 4.3% for the rest of Africa. In our view, the insecurity situation in the first half of the year contributed to a slowing growth as investors adopted a wait and see attitude towards real estate investments.

From the KBA report, there seems to be a negative supply relationship between apartments and bungalows as most bungalows are converted to apartments. This confirms that the rising middle class prefer apartments to bungalows and maisonettes, as they are relatively more affordable and increases security within the developments. Preference for apartments, coupled with the increased purchasing power of the middle class, suggests that development of residential apartments for the low to middle income earners would be an investment opportunity worth tapping into.