Kenyan property prices rise despite low rents and few mortgages

The real estate market in Kenya remains attractive for investors, with the average property price in Nairobi rising more than fivefold in the 2007-14 period, from KSh30m ($330,000) per acre to KSh170m ($1.9m) at the end of 2014, according to HassConsult, a local real estate agency. In a positive sign for longer-term sustainability, indicators point to increasing market maturity as well as buyers becoming more discerning in their purchasing plans. This has led to less fluctuation and uncertainty in the market, according to Sakina Hasanali, head of research at HassConsult.

Supply is adjusting accordingly. According to Hasanali, developers are in turn paying extra attention to quality and presenting buyers with more diverse options, especially in the higher price bands. Many developers have shifted to the upper-end, largely cash-based spectrum in part to avoid the risk of owners struggling with loans and prohibitively high interest rates, although there are indications that this has resulted in a degree of oversupply in 2015.


Nairobi has long been the main focus of Kenya’s property market. Indeed, the World Bank in 2015 ranked the capital city 16th out of 35 African cities by weighted average rent yields for the four main segments of residential, office, retail and industrial. Yet the country’s recent devolution of powers to local authorities has been a game-changer, opening up new opportunities outside of the capital city.

As a result of this, growth is now expanding outwards into Kenya’s counties. Between 2007 and the second quarter of 2015, land prices in the satellite towns around Nairobi have risen sixfold, compared with fivefold growth for the inner-city suburbs, according to HassConsult. This includes locations such as Athi River, Ngong, Limuru and Tigoni. Meanwhile, in the capital, the Upper Hill area continued to lead land prices in the second quarter of 2015, with an average per-acre rate of KSh493m ($5.4m), which constitutes a rise of 15.3% over the previous year.

Master Planned

Large, master-planned community developments are gaining traction in Kenya, despite scepticism about the quality and viability of such large-scale projects. According to Njoroge Ng’anga, former CEO of local developer Home Afrika, mixed-use complexes will become increasingly common and expand out to the middle-income segment.

The first such master-planned community in Kenya, Tatu City, kicked off its first residential phase in July 2015 after nearly four years of delays. Plans for the city, a KSh240bn ($2.6bn) development of more than 2500 acres in Kiambu County, were drawn up in 2010 in line with the country’s Vision 2030 national development plan and the Nairobi Metro 2030 strategy, with Rendevour, a major African urban developer, as the biggest shareholder. The project was later redesigned to be more in line with market demands, with a new focus on light industry and low-density residential areas. The first residential phase, Kijani Ridge, is targeting upper-middle-income buyers with quarter- and half-acre plots, of which 300 are expected to become available. A separate, high-density residential component – still being discussed as of mid-2015 – aims to provide 10,000 apartments for the lower-end segment, and plans to start construction in 2016. In November 2015, a Sh400m ($4.4m) deal was agreed with Chinese engineering firm Sinohydro to provide water, sewage and temporary road works infrastructure for the project’s first phase.

“Master planned cities will definitely work in the market, but the initiatives that have been launched thus far may have been slightly ahead of their time,” Charles Odere, CEO of RE/MAX Kenya, told OBG. “However, in the next five to 10 years, we definitely see this development model really taking off.”

The city’s commercial property component, meanwhile, is beginning to gain some traction. In August 2015 Kim-Fay East Africa, a local producer of health and hygiene products, announced plans to relocate its corporate headquarters from Nairobi to a 10-acre plot in the Tatu Industrial Park at a cost of KSh2.5bn ($27.5m). Kim-Fay joins Dormans Coffee, which is intending to move its roasting factory to the site in a planned KSh650m ($7.2m) investment, alongside other firms such as Coopers-K, Maxam and Bidco.

A second master-planned city is Konza Technological City, located 60 km outside the capital and designed to promote growth in the country’s IT industry within the Vision 2030 framework. At a planned cost of $14.5bn, Konza will include a central business district, university campus and a residential community, as well as parks and wildlife areas. Phase one will consist of 400 acres and 1.5m sq metres of vertical development, and is to include an office district, technology district, and residential and university areas. The estimated 20-year development project broke ground in early 2013, and the project has received more than 200 expressions of interest, according to John Tanui, CEO of the Konza Technopolis Development Authority, the state body in charge of the project. While financing these and other large residential projects is challenging, some observers see strong potential in the market for them.

“A growing number of middle-class Kenyans are demanding world-class developments,” Robyn Emerson, regional director of RE/MAX Kenya, told OBG. “If one of these planned cities takes off in a good way, we will see a mass exodus to these suburbs.”

Infrastructure Costs

In Kenya, basic infrastructure requirements are the responsibility of real estate developers, meaning these costs usually end up being shifted onto property buyers. This is a particular hindrance in the middle and lower segments, where electricity, sewerage and water installation typically make up about 30% of project cost. There is, however, some hope that the recent devolution of powers will enable local governments to eventually take more of a lead in providing basic infrastructure. Major infrastructure projects that are coming on-stream are opening opportunities for developments within a wider radius of the main cities, particularly Nairobi, as new transport links enable more residents to commute to work in the busy city centre.

Office Space

After a strong year in 2014 for business properties, office take-up has eased in 2015, reflecting a lower number of global companies needing space. According to Maina Mwangi, executive director of Knight Frank Kenya, 2014 saw an oversupply of grade B office space and a relative shortage of the grade A variety. As a result, take-up for the former in 2014 fell by 80% while prime rentals saw a 5-10% rise. Mwangi told OBG that take-up of high-end office space has plateaued, but added that nerves have not been overly shaken, as the government remains a large consumer of such spaces.

Average prices for office rentals in Nairobi in 2015 stood at $20 per sq metre, according to a report by PwC. The report concluded that, in the country’s saturated office sector, supply was likely to exceed demand in 2016, consequently driving down prices. MML, a Nairobi-based project management firm, found in mid-2015 that average rental prices for Nairobi office space were up 6% on 2014, with the highest growth to be found in Westlands at 8% and Waiyaki Way at 7%. The highest average asking rents, MML found, were in Gigiri, at KSh150 ($1.65) per square foot, compared to KSh95 ($0.95) for the Central Business District (CBD) and KSh60 ($0.66) on Mombasa Road. MML forecast that the office sector in Nairobi was on course to increase by 54.5% in 2015 to reach 2.8m sq feet, though grade A space would still be undersupplied, amounting to just 34% of the total added to the market the previous year.

New office space is set to come on-line in the final quarter of 2015 and into 2016, and up-take of these spaces are expected to take some time, according to Karen Koigi, head of research at Broll, a South African property services provider operating throughout sub-Saharan Africa. Yet there is little worry of a glut, Koigi told OBG, with occupancy rates holding strong. She noted that there is a mismatch in the Kenyan real estate market between the types of property buyers want and the kind currently available, especially for industrial space, where developers tend to offer a mere “shell and core” and leave buyers to build the rest – installing air conditioning, carpets and so on – thus adding to the time and cost required before a space is ready for use. Lack of progress on infrastructure and road development in Nairobi, meanwhile, has held back some areas, such as Upper Hill. Supply should outpace demand into 2016, with units taking more time to move but unlikely to have a big impact on prices, according to Mwangi.


The residential market in 2014 saw only a “marginal increase in capital and rental values”, according to a 2015 report by Knight Frank Kenya. High-end rentals were down in 2015, with fewer foreign agencies sending non-essential staff to Kenya in light of security concerns highlighted by incidents in 2013 and 2014. Exacerbating this is a reduction in oil and gas personnel in the country following the decline in global oil prices, Mwangi told OBG.

Nevertheless, the Kenyan residential market depends largely on domestic buyers and renters for high- and mid-range properties, meaning that the effects of this could be marginal. “While 2014 was relatively slow, we have seen much more activity in 2015 in terms of developments and sales,” Mwenda Thuranira, CEO of Myspace Properties, told OBG. “This was in large part due to the lack of major destabilising events or security risks, which has had a positive influence on the market.”

With yields from Kenya’s stock market relatively tame, investments in property have proven more and more attractive over the past half-decade, both as a store of value and as a means of income in the buy-to-let market. According to a report by HassConsult, property in Kenya in 2014 saw sales prices increase by 8.3% and rental prices rise by 9.8%. These gains, however, varied by type, with detached houses up by 6.7% and 9.3%, respectively, which was below the rises for semi-detached houses (9.7% and 10.5%) and apartments (13.2% and 10.4%).

In terms of sales, the suburbs commanding the highest prices were Nyari, Lavington and Riverside; while for rentals they were Gigiri, Lavnigton and Riverside. The strongest gains of all in apartment prices, according to HassConsult, were in Parklands, which saw an increase of 18.2% in 2014. More recently, asking prices rose 2.2% for all properties in the second quarter of 2015, with semi-detached houses up 4.8% and apartments 5.1%. Rental prices in Embakasi experienced the strongest increase over the year, up 31%. Kileleshwa came a close second in terms of increase, at 27.9%, and Langata at 24%. Riverside and Westlands remain home to the highest priced apartments overall, with average prices of KSh19m ($209,000), and also for apartment rentals at KSh117,000 ($1287) to KSh120,000 ($1320)/month, which constitutes a rise of 17 to 21% according to HassConsult’s data.

Housing Price Index

A new housing price index, launched in early 2015 by the Kenya Bankers Association (KBA) should prove a useful indicator for guiding policymakers and industry stakeholders. This quarterly assessment of price levels and movements – including qualitative, quantitative and locational factors – will help address the lack of sufficient data on which industry players may base their investment decisions, and it represents a vital addition to the sector as it matures. The KBA expects the index to be used by mortgage providers as a tool to manage risk, as well as by those seeking to use their property as collateral for loans. The indicator can also serve as a “proxy on the state of the economy”, KBA notes.


 Mortgages in Kenya are rare. The Central Bank of Kenya (CBK) estimates that there are just 22,000 on the books in the country, despite a population of 44.3m. Most Kenyans cannot afford mortgages, which is a major constraint on the country’s real estate market. Commercial loans to the private real estate sector reached a total stock of KSh262.7bn ($2.9bn) at the end of 2014, up 32% on a year earlier, according to the CBK. When it comes to buying property in Kenya, cash purchases predominate, according to the African Development Bank. This is partly because interest rates on conventional loans are high, at an average of 15.8% as of end-2014, according to the CBK – a rate that has faced upward pressure in 2015 as the central bank has kept monetary policy tight to stem the shilling’s depreciation.

Most Kenyans are locked out of the mortgage market. HassConsult found in 2014 that of those living in urban areas, only half could service a mortgage of just KSh700,000 ($7700), while 4% could handle one worth KSh3.9m ($42,900) and 1% can afford a home loan of KSh5.7m ($62,700). This puts home ownership out of reach for most people in Nairobi, where land prices have skyrocketed, quintupling in the seven years to 2014, with the average per-acre price now at KSh170m ($1.87m), according to HassConsult.

Part of the reason for this price-out is high interest rates, which have averaged around 15% in recent years, as well as eligibility requirements focused on employment. In mid-2015 the CBK raised its base lending rate by three percentage points to 11.5%, keeping upward pressure on mortgage interest rates.

Another constraint is the lack of a robust credit rating system in Kenya, meaning that extra weight is given to employment status when it comes to mortgages. Credit reference bureaus, regulated by the CBK, came onto the Kenyan market in 2009. However, a large informal sector, combined with low levels of collateral and household incomes, has put limitations on the relevance of the credit reference framework for the majority of would-be buyers.

Low- Cost Homes

Despite the growing national and urban population, affordable and social housing options in Kenya are few and far between, and the government has struggled to keep pace with demand for low-cost dwellings. Overall housing demand in Kenya is estimated at 200,000 units annually, yet just 30,000-40,000 units are added to the market each year, according to the Ministry of Land, Housing and Urban Development. An estimated 60% of Nairobi residents, or 2.5m people, live in slums, with around 200 settlements on approximately 6% of city land. The NHC’s “2012/13 National Household Survey” – the latest available from the Kenya National Bureau of Statistics – found that urban tenant households spend 33.1% of their income on rent, a figure that jumps to 40.8% in Nairobi County. The number of social housing developments available each year is far short of low-cost housing demand.

Addressing this gap is largely in the hands of developers, yet the number of builders concentrating on the lower end of the sector is extremely limited. One exception is Karibu Homes, whose master-planned community, called Riverview, aims to meet some of the growing demand from the middle- and lower-income brackets. Its approach is to keep costs down in the design rather than the construction phase, Ravi Kohli, the firm’s founder and managing director, told OBG. The 20-acre development space will contain two housing types with different price points, a central area, nurseries and other community facilities.

Others, however, are reluctant to enter the low-end segment. The expense that is involved in making land purchases, sourcing materials and installing infrastructure makes it somewhat difficult to provide quality structures at a price that Kenyans can afford. The initial outlays that are required for developing and purchasing real estate – especially the high cost of land – mean that lower-spectrum housing is typically not a priority for contractors.

In light of these barriers, Kenya’s state-owned National Housing Corporation (NHC) began a project in 2014 to build more than 4000 low-cost units in Mavako – not far from Nairobi – at a cost of KSh12bn ($132m), along with schools and a medical centre. Yet this will fill only a fraction of the need in the area, which stretches to 20,000 units. In 2014 the NHC saw the completion of 243 residential units in Nairobi at a total cost of KSh502.1m ($5.5m). This project was part of a spending increase by the NHC which saw outlays rise from KSh3.5bn ($38.5m) in fiscal year 2012/13 to KSh6.1bn ($67.1m) in 2013/14. In another positive sign, in June 2015 the labour secretary, Kazungu Kambi, told media that the National Social Security Fund would provide KSh30bn ($330m) worth of land for 60,000 low-cost housing units in Mavoko.


The core areas for industrial real estate in 2015 remained Nairobi, Mombasa and Kisumu, according to Koigi. Industrial properties in Kenya tend to be relatively old and are often built to low standards, yet demand is still strong enough that grade B and C spaces are still being taken up, she told OBG. With occupancy rates remaining at consistently high levels, rents are rising, particularly for warehousing and logistics, while sectors looking for high-quality industrial space include pharmaceuticals and retailers. In 2015 Broll forecast that retailers’ demand for storage distribution space in Nairobi would cause an “increase in the sale and rental prices of warehouses”. To meet demand, the city’s eastern bypass area had some 93,000 sq metres of space in the planning phase as of mid-2015, Broll highlighted.


Rising incomes and sustained consumer demand are driving construction of new malls and shopping centres, especially in and around Nairobi. In the Two Rivers mixed-use development under construction in Runda, 14 km from the capital’s Central Business District, some 65,000 of the 94,500 sq metres in planned gross leasable area (GLA) will be devoted to retail. The mall is slated to open in late 2015, with anchor tenants including Carrefour, LC Waikiki and Woolworths. This will displace Garden City, another mall on Thika Road in Nairobi that opened in May 2015, as the largest in East Africa.

Phase one of Garden City – which is being developed by the UK private equity firm Actis for a total cost of KSh22.7bn ($249.7m) – includes some 33,000 sq metres of retail space alongside two- and three-bedroom apartments, a 120-room hotel and three acres of park space. Retail tenants include South Africa’s Massmart, local supermarket chain Nakumatt and a range of global brands. Upon completion in 2017 the mall’s total retail space will jump to 55,000 sq metres. Also under construction is HUB Karen, a mall 14 km south-west of the city centre that will have a GLA of 29,000 sq metres upon completion, “The demand is there from shoppers,” Timothy Mulondo, a researcher at Axis Real Estate, told OBG. “They’re spending – that’s what’s driving growth.” Road expansions, including the Thika Superhighway, are enabling consumers to reach new retail locations.


In the short term, the relatively higher concentration of incomes and wealth in Nairobi and its environs mean these areas will remain the locus of residential activity, particularly as high interest rates preclude a deepening of the mortgage market. Developers are also likely to stay focused on the capital city and suburbs due to the consistently higher rates of return. In the long term, however, devolution will gradually bring new growth into remoter areas as local councils gain greater control over the distribution of funds. In this regard, cooperation between the national lands authorities and the local county governments is crucial to supporting more even and sustainable development in the real estate sector.


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Kenya 2016

The Guide

Table of Content

Construction & Real Estate chapter from The Report: Kenya 2016

Construction & Real Estate chapter from The Guide

Construction & Real Estate chapter from Table of Content

The Report: Kenya 2016

The Report

This article is from the Construction & Real Estate chapter of The Report: Kenya 2016. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart