Real Estate Trends: Residential Sector House Pricing Remains Subdued

Lately, Kenya has become quite a hub for investment opportunities for both foreign and local investors looking to diversify their investment across multiple market segments, especially the real estate and the construction industry, but so much is expected in the residential subsector.

According to Britam, the residential sector has remained subdued because of suppressed growth in house prices mirroring that of credit growth to the private sector. Also, credit has been associated with the demand and supply dynamics in the middle and high-income housing market.

Britam notes that of the total transactions, apartments continue to dominate the sales markets across all income segments and consequently, prices of apartments continued to register high increases compared to prices of bungalows and maisonettes though modest.

The anticipation of more activity has been placed on the lower end of the market compared to the middle and upper market segments.

The government has put in place measures to bridge the gap in the provision of affordable housing in the country amid rapid growth in urbanization, which is estimated by World Bank to be at 4.4 percent.

With the housing deficit now standing at an estimated 1.85 million units, the state has pledged to offer private developers about 7,000 acres of public land as an incentive package to encourage partnerships to meet the one-million low-cost units a year target in less than five years at a cost of about 2.3 trillion shillings.

The idea is to facilitate constructions by private developers to put up 800,000 affordable units, with costs of less than 3 million shillings to be sold under an off-plan arrangement and additional 200,000 social housing units through the redevelopment of land in slums.

The social housing classification will target individuals with an income of up to 15,000 shillings whereas the affordable housing classes will focus on persons with an income of between 15,000 and 50,000 shillings.

There is also a focus for a significant achievement in the sector through the setting up of the Kenya Mortgage Refinance Company.

In 2016, the Treasury halved corporate tax for developers who put up at least 400 low-cost residential houses to 15 percent in a bid to encourage the construction of at least 200,000 affordable units every year.

Another positive incentive deemed to aid the residential sector growth is the scrapping of the 0.5 percent levy on the total cost of housing by the National Construction Authority and the 0.1 percent with a minimum of 10,000 percent charge by the National Environmental Management Authority.

Amidst the dynamics of the real estate subsectors, the prime residential market is maturing. Between 2016 and 2017, the sector experienced price correction forcing vendors to adjust their price expectations.

The transaction volumes and rental uptakes, however, are expected to increase moderately in 2018 as the market normalizes after effects of the election in 2017.