REAL ESTATE IN KENYA: Boom or Bust ?

REAL ESTATE IN KENYA: Boom or Bust ?

“Earth is the best investment on earth”.

A 2012 independent real estate management report placed the Real Estate sector in Kenya as the best performing in the world.
A 10% increase in prices over the last 3 years has been punctuated by dropping prices and at a point , stagnation owing to political insecurity.

However, as we approach the midpoint of 2018, improved government policies and tax incentives for investors has opened up a new wave of opportunities in the Real Estate sector of the east African country.
A 14% contribution to GDP has led to an exposure of a hitherto redundant sector with demographic, financial and socio cultural factors being responsible for its steady growth.

Major towns like Mombasa and Nairobi have a case of increased demand in residential apartments ( rent and sale) with inadequate supply owing to urbanization.
Surprisingly, there is an oversupply of office apartments as political tension have previously led prospective buyers to adopt a ‘wait and see approach’.

The announcement of the Qatari Royal family in 2014 pf a plan to invest in the country’s real estate sector by providing luxurious apartments , led to increased inflow in foreign investment in the sector. Indeed, earnings from the sector has 72% attributed to income from the diaspora as more Kenyans abroad are willing to invest. This has led to a boom
Major infrastructural facilities like road networks leading from the major towns to satellite towns has moved the demand from Nairobi and the port city of Mombasa to lesser towns as urbanization seems to be on the rise. The Uhuru Kenyatta Administration had earmarked urbanization and rural infrastructure development as one of its key indices and the president has regularly tried to cajole investment from middle east nations . This has led to an increase in the number of buildings and structure for rent and sale.
Retail housing

In major cities, there is a glut in retail centres to cater for the economic needs of the teeming population. Supermarket buildings and other large trade centres are the key components of this real estate type and developers have been encouraged to take up loans to effectuate them. This led to an increase in loans for real estate purposes by 16%. However, the urbanization of satellite towns has led to a shift and new locations for development , coupled with proximity to social amenities and better security in the hinterlands (satellite areas), the retail housing would likely continue to grow.
Office space

This constitutes spaces for office and are mostly on rent. There is an oversupply of office spaces around major cities in the country as governments decision to impose taxes on developers of office space , security fears, Government’s decision to move parastatals ( a key utilizer of office space) to central authority and strict development rules by the central planning authority has reduced the demand for offices around the country.
Residential apartments
Demographics (age, sex, cultural differences , lifestyle) , income , cost of credit and price are key components or factors of demand for the construction of residential apartments in Kenya. Proximity to social amenities and security is also an important factor.
There has been an increase in the development of residential apartments for rent in urban cities owing to increased population. It would be more favourable to build a block of flats in Nairobi than in towns like kitengela or thika(fast growing satellite towns).
A UN report has faulted the development of Satellite towns as impeding urbanization in the country. However, the increase in the development of Luxury apartments in those areas seems to negate that fact and with 20-30% average returns on investment as compared to other countries in the region, the residential segment seems to hold the highest chances of profit and the brightest spot in the nations sector.
Industrial Buildings

The increased urbanization of lesser cities has led to a movement of industries towards closer access to the market. Industries are springing up and the governments decision to grant tax incentives to developers of 400 or more units of land has renewed confidence in the key stakeholders that contracts can be executed with loans and there is every certainty of great profit.
Special Buildings
Estates and luxurious mansions have become a new building habit as Kenyans from the diaspora have made more attempt in recent years to buy and own lands in their country of origin. This has meant that the prices of land around these areas have shot up and provides gain for land owners. Indeed, big real estate developers have taken advantage to build and develop these sprawling buildings equipped with the best quality materials with prices as high as 20 to 60 million Kenyan shillings for an average mansion.
There is a huge potential for growth in the real estate sector as recent projections show an improvement in the coming years due to increased political stability and the improvement from regional neighbours, Rwanda.
However, the government would need to work with the private sector to ensure that demand can adequately match supply and earn increase revenue for the government on the one hand and an overall improvement on GDP contribution ratio for the nation’s economy.

This article was written by Nkemjika Okeke, Co founder of BRENK SOLUTIONS, A business development firm in Nigeria.

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