High Gross Domestic Product (GDP) growth in Kenya, high annual returns, and positive demographics have been stated to be supports of growth in the real estate investments across the country.
According to the Cytonn Investments report on market review, investment in the real estate sector continues to grow supported by Kenya’s high GDP growth at 5.8 percent in 2016, making it an ideal location for local and international investors, high annual returns of above 20 percent, with 2016 returns at 25.8 percent, and positive demographics such as high population growth at 2.6 percent p.a. against a Sub-Saharan average of 2.3 percent.
Rapid urbanization at 4.3 percent p.a., versus a global average of 2.0 percent, an expanding middle class, and improvement in infrastructure opening up new areas for development were also named as key boosters in the growth of the sector.
The main challenges that have continued to face the real estate sector include high development land costs, high construction costs, low access to financing, and buyers adopting a wait-and-see attitude as a result of elections scheduled for August 2017, which has led to a reduction in transaction volumes in the market. Regardless of these, investors continue to bank on the sector due to its attractive returns.
In terms of performance, the report disclosed that apartments asking prices increased by 2.7 percent during H1’2017 while asking prices for detached units increased by 1.2% percent on average during the same period. Asking rents for apartments increased by 4.7 percent while asking rents for detached units declined by 1.9 percent on average during H1’2017.
The higher increase in rental prices compared to asking prices can be attributed to sustained demand for rental housing, while asking prices remained fairly stable in most markets as buyers adopt a wait and see approach due to the upcoming general elections.
The commercial sector’s performance declined during the first half of 2017 as office rents and occupancies declined by 0.2 percent and 2.3 percent respectively while the retail sector struggled with the closure of retail outlets. The industrial sector, however, experienced higher demand;
The land has continued to attract developers and investors as land prices across all areas in the Nairobi metropolitan have registered a 5-years CAGR of 19.4 percent, and a 5-years price change of 2.50x.
In the period ending December 2016. Commercial zones such as Kilimani, Upperhill, and Westlands recorded the highest capital appreciation at a CAGR of 24.3 percent in 2016, while site and service schemes in satellite towns such as Athi River and Syokimau recorded a 5-year CAGR of 20.4 percent.
The land performance is positively affected mainly by planning regulations and trunk infrastructures such as sewer lines and road network.