Rent to Increase as Apartments Fetch High Demand

Rents in lower mid-end and upper mid-end sectors of the market are set to increase in the short-term as interest rate caps continue to affect loans and mortgages forcing home buyers to opt for rented apartments.

The interest rate capping at 4 percent above the Central Bank’s rate, which is currently standing at 9 percent, has driven many in the financial sector to opt for investing in government securities instead of lending to people.

The credit crunch has increased the cost of buying or constructing a home leaving many with no choice but to settle for the cheapest option, renting.

The growing demand for apartment and homes, as a result, is likely to steepen house prices in urban centers particularly in Nairobi and Mombasa and any other town with a large number of working populations.

According to Beatrice Mwangi, a Research Analyst at Cytonn Investments, people are choosing to rent because financing and mortgages have become more expensive.

“The high rent prices are attributed to the growth in demand for apartments due to their affordability especially as loans remain out of reach for a majority of aspiring home buyers,” she said.

Among the lower mid-end segments projected to fetch high prices include Athi River, Rongai, Ruaka, Donholm, Komarock, and Thindigua. These segments realized higher average rental yields with 6.8 percent compared to the upper mid-end segments which registered 5.6 percent yield on the property.

“These areas are preferable to the majority of Nairobi’s population consisting of young families and the working-class due to their affordability and infrastructural improvements that have rendered them increasingly convenient, hence the growing uptake,” Cytonn Investment says in its 2018 market review.

According to the review, Donholm, and Komarock, due to the relatively high rate of price appreciation driven by high investment demands, posted the highest returns. The region provides affordable rental prices and is close to the central business district (CBD), Mombasa Road and Thika Road, making it highly convenient.

The asking prices in Thindigua stood at 9.6 percent marking the highest appreciation. Occupancy rates in Donholm and Ruaka were the highest with 100 and 95.6 percent respectively, which is an evidence of high demand.

Meanwhile, the upper mid-end is projected to continue growth trajectory especially after it registered 26.6 percent annual uptake, which was the highest and an average occupancy rate of 89.3 percent in comparison to the residential sector that hit an average of 22.8 percent and 81.0 percent in occupancy rates.