More Developers Venturing into the Country’s Lucrative Real Estate Sector

Housing supply is expected to increase in Nairobi as developers aim to tap into this lucrative sector as house prices continue to rise across the country.

According to the Kenya Bankers Association (KBA) Housing Price Index report for the 3-month period ending September, there has been a 2.2 percentage growth on house supply as compared to the 1.7 percent growth which was recorded in the previous quarter.

While the report supports Hass Consult’s Q3’2016 Property Price Index findings on price increase during the quarter, it differs from the latter that recorded a 1.2 percent growth, slower than the 4.0 percent rise in Q2’2016. 

Below is a graph showing the prices increases quarter on quarter;

Source: Cytonn Report

Key takes from the KBA HPI report were as follows;

1. Buyers have shown consistency in preference with the greatest factors influencing price movement still being house size, including number of bedrooms, bathrooms and presence of detached staff quarters, security and privacy, and proximity to social amenities,
2. Apartments had the largest share of market transactions at 58.6 percent, while maisonettes and bungalows accounted for 24.3 percent and 17.1 percent of total sales, respectively,
3. Apartments had the largest number of transactions in lower and middle income markets. In particular, apartments in middle income areas such as Kiambu Road, Waiyaki Way, Langáta and Ngong Road recorded a 3.4 percent price change during the quarter compared to high end areas at 1.8 percent. This can be attributed to their affordability and therefore they are preferred by the low and middle income earners. The slow rise in apartments’ prices in the high end areas is due to relatively slow uptake indicating a possible oversupply in this market
4. Maisonettes, on the other hand, recorded the highest price movement at 4 percent in high end areas such as Kileleshwa, Kilimani, Karen, Garden Estate and Muthaiga, driven by the high-net worth clientele in these areas.

According to Cytonn Investments, they stated that their view on the same was that the continued house price increase indicates sustained demand for housing. As developers put up units in response, we are likely to witness increased focus on the lower income segment that remains largely unsupplied.

In addition to demand, other factors likely to positively impact real estate as an investment include;

1. Tax incentives for development of at least 400 low cost units, now at 15 percent,
2. Financial Support – The banking industry has supported home acquisition and development through enabling access to credit and improved services. The recent capping of interest rates will also give potential borrowers incentives to seek mortgages, and,
3. High returns – Real estate has consistently outperformed other asset classes, with returns of up to 25 percent making it attractive to investors. This is from rental yields ranging from 6-12 percent for different real estate themes, and high price appreciation, especially for those who invest at development stage.

According to Cytonn, other projects, the 300 billion shilling Public-Private Urban Renewal Project involving development of more than 14,000 units in Ngara, Pangani, Ngong Road and other areas in Nairobi, is set to begin in January 2017. Developers will however need to put emphasis on research to determine the appetite for housing depending on regions and the income of the target market.

Related: Global Capital Fuelling African Property Markets