No sign of Kenya’s property market running out of steam

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With demand for real estate in Nairobi sending property prices soaring on the back of rapid urbanisation, nearby counties are also seeing an uptick in activity as developers look to channel funds into satellite cities and commuter towns.

Advertised land prices in Nairobi’s nine fastest-growing suburbs have increased five-fold since 2007, according to the Hass Property Index, issued by local real estate firm HassConsult in partnership with asset management firm Stanlib. Growth was the most pronounced in the Upperhill and Kileleshwa neighbourhoods, where prices soared by 789% and 614%, respectively. Land in Upperhill is now the most expensive in the city, averaging KSh470m ($5.01m) per acre.

“The pressure on land prices is caused by the inherently limited supply of land close to key city centre clusters,” said Kenneth Kaniu, chief investment officer at Stanlib, quoted in the report.

However, the rise in prices has led to a slowdown in new project announcements as developers consider more carefully the cost of potential transactions, Farhana Hassanali, the CEO of HassConsult, told OBG. “The price of land is essentially pegged to its development potential, and we are seeing many parcels of land sitting on the market for longer periods of time,” Hassanali explained. “It is likely we will see some correction in prices, or at least a stalling in their rise.”

Filling the gap

In addition to the limited availability of land, high housing demand has also contributed to the rise in the cost of house and apartment sales and rentals. Residential property prices rose by 8.3% year-on-year in 2014, with apartment prices increasing 13.2%, according to HassConsult data.

The single-largest contributor to the rise has been the increased demand for middle-income and affordable housing in Nairobi, with official estimates putting the need at 200,000 units annually. Reducing the housing deficit is a priority for the government, which has recently pledged to construct 300,000 affordable housing units by 2017.  

The jump in property prices has attracted significant interest from the banking sector, prompting the Kenya Bankers’ Association (KBA) − the industry’s umbrella body − to launch in February 2015 its own house price index (HPI) for measuring and monitoring the sector’s development. 

Despite efforts to grow the mortgage market in the country, it remains severely undeveloped, with most estimates placing the total number of mortgages across the country at about 20,000. Analysts cite high interest rates and low wages as obstacles to the growth of the sector.

Farther afield

The upward trajectory of Nairobi’s property market is leading to knock-on effects in surrounding areas. Among the larger planned developments in the region include Migaa, a 774-acre master-plan city located in Kiambu county, about 30 km from downtown Nairobi, that is being developed by Home Afrika and is set to include a hospital, golf course, museum as well as retail and commercial space.

In a separate development, Konza Tech City − a government initiative to develop a “green” satellite hub 60km south of Nairobi in Machakos County − will house the country’s IT and education industries when built. One of the first master-planned projects announced was Tatu City, which when completed, is expected to include 2500-acre, mixed-use, development in Kiambu county, about 30 minutes from Nairobi city centre.  

Nevertheless, the proliferation of satellite cities and commuter towns is likely to increase in the coming years, Njoroge Ng’ang’a, group CEO of Home Afrika, told OBG, but will be reliant on concomitant improvements in transport links. “The biggest obstacle limiting township developments is the current state of infrastructure,” Ng’ang’a told OBG. “Connectivity is key. Improved roads, as well as new projects like the proposed commuter rail lines, are essential for the successful development of the satellite cities, which if executed correctly will open a whole new class to home ownership in Kenya.” 

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