It is a beehive of activity as heavy earth-moving equipment and builders assemble brick and mortar to a lavish property development, taking shape on an expansive piece of land situated along Thika superhighway.
When complete, the 32-acre Garden City, financed by UK-based private equity firm Actis, will comprise a 50,000 sq metres retail mall —the largest in East Africa. Others will be modern commercial premises, 500 homes and a 4-acre central park that will house an outdoor house arena for staging shows and concerts.
“Kenya’s property market has potential for higher rates of return compared to other jurisdictions. It is also relatively easy for foreign investors to enter Kenya’s real estate sector,” said Nathan Luesby, Managing Director-Jenga Web Ltd and a former broker at the London Stock Exchange.
“While the last four to Five years have seen turbulence in developed property markets around the world, Kenya’s situation has remained relatively stable.” While markets such as India, Dubai and China have had a boom over the last 15-20 years, these markets have big bubbles with potential to explode anytime.
What a foreign investor seeks in Kenya’s property market depends on several factors including one’s risk profile and what kind of returns they are looking for. While industry figures show a slowdown in Kenya’s property prices, this situation offers the best opportunity to get in. However, cost of mortgages is still high, making most investors to hold back their buying decisions. “But there is no bubble in the property market. A rapid population increase and a rapidly growing economy are still fuelling demand for property, against limited supply,” said Luesby.
While there is limited supply of houses, prices have remained flat and stagnated in several places. High mortgage has hit the middle classes who are the main drivers of the property market. The market has stagnated. This is because most people are unable to get leaving rental houses empty.
In a bubble situation, prices inflate exponentially on the back of no demand. People who borrow to finance purchase of houses panic when the price of the property surpasses the cash borrowed to finance its construction.
In Kenya, most of the property purchases are cash-based transactions.
Property development is the most lucrative with a rate of return upwards of 30 per cent with the investment having a turnaround of between two to four years. For those seeking for rental income, the best option would be to purchase ready-made houses. Investment in rental houses has a return of between six to eight per cent. This compares with returns in commercial property segment where returns are at 12 per cent.
It all depends on whether one is looking to buy land and construct houses or buy ready-made units.
“Demand is still strong in the middle to high income segments of the market. There is also a lot of land to be purchased around Ngong, Kitengela and Ongata Rongai. Other areas are Syio Kimau as well as urban areas of Nakuru and Eldoret,” said Samwel Rono, an officer at Legend Valuers Ltd.
“Mombasa has become a no-go zone for many foreign investors due to recent violence involving extremist youth groups.” The ongoing unrest is already affecting property prices at the coastal regions, driving away buyers and investors alike. In the Parklands area of Nairobi, demand is high on each available property is snapped up by the moneyed Asian community residing here. At the low-income end of the market, demand is low because most of those residing in this segment are struggling to buy food and cannot therefore have spare cash to invest in property.