PLANNING TO INVEST IN KENYA, HERE IS ALL YOU SHOULD KNOW
May 7, 2020
Kenya’s housing market is cooling rapidly, amidst falling demand caused by constrained credit access, coupled with the continued oversupply of high-end residential developments. During the end of 2019, the Hass Composite Property Sales Index, a measure of asking sales prices of residential properties, fell by 3.4%, in sharp contrast to a year over year rise of 8.1% during the same period last year, based on a report released by HassConsult Limited. It was the second consecutive quarter of year over year price declines after falling by 3.2% in Q2 2019.
Several Nairobi suburbs registered nominal house price rises. Nyari Estate, one of the most secured upmarket neighborhoods in Kenya and in close proximity to many diplomatic establishments, saw the biggest rise in house prices of 12.4% during the year to Q3 2019. It was followed by Ridgeways (10.6%), Loresho (9.5%), Muthaiga (8.6%), Karen (6.2%), and Gigiri (5.2%).
Modest to minimal price increases were recorded in Westlands (4.8%), Runda (4.8%), Spring Valley (4.7%), Donholm (4.3%), Kitisuru (4.1%), Lavington (3.7%), Kileleshwa (3.1%), Kilimani (0.9%), and Eastleigh (0.5%). Langata, home too many housing developments and known for its gardens and parks, was the only Nairobi suburb which registered a nominal house price decline of 3.8% during the year to Q3 2019.
Despite the recent decline, house prices in the capital are still 4.4 times higher than in 2000. The average value of a residential property surged to KES 31.2 million (US$ 304,777) in September 2019, from just KES 7.1 million (US$ 69,356) in December 2000. The average price for a 1-3-bedroom residential property is currently KES 14.4 million (US$140,666), while the average price for a 4-6-bedroom residential property is KES 39.1 million (US$ 381,948).
Due to the interest rate cap implemented in 2016, it has resulted in the lack of liquidity as commercial banks have become more conservative at lending funds to developers and buyers. There is high demand for low middle-income housing in far-flung Nairobi’s metropolis as tenants opt for cheaper units in the wake of the prevailing high cost of living and uncertainty in the economic environment.
In regard to rent values, they have increased by almost four times as of 2001. This provides a great opportunity for investors to purchase properties from real estate consultants with the aim of letting out the properties to potential tenants who are willing and able to rent the properties. The locations where investors should primarily focus on are Westlands (recorded the biggest rent increase 2019 by 5%), Kilimani (3.2%), Lavington (2.9%), Runda (2.5%), Eastleigh (2.4%) and Kileleshwa (2.2%). As real estate consultants, focusing on locations that yield high returns for investors act as a magnet in tempting investors to commit. Keeping the above in mind, however, it is also critical to note that there are areas within Nairobi that had the opposite result in terms of rental value. The locations that had a dip in value of rent include Loresho, (which recorded a rent decline of 3.5% during in 2019), followed by Karen (-2.2%), Spring Valley (-1.5%), Ridgeways (-1.1%), Kitisuru (-1.1%) and Langata (-0.8%).
Before committing to an investment in Kenya, it is vital to take into consideration the important factors that can aid in making such a critical decision, where the end result could be desirable or costly. Investors including real estate consultants need to carefully conduct a cost benefit analysis of their decision to invest on a certain property.
Set your goals. It is important as an investor or real estate consultant to determine what you are looking at achieving? What success looks like to you? Property investors generally invest in property to secure their financial future.
Prior to investing in residential properties for sale/rent in Kenya or/and commercial properties in Kenya it is crucial to ensure you as an individual investor or real estate consultant have the necessary finances to be able to afford the desired investment project. The last scenario an investor would wish to experience is a situation where he/she thought they were able to afford the investment only finding out during the investment process that they miscalculated or misjudged their financial situation.
Budgeting and creating a purchase plan for a residential property investment or/and commercial property investment is necessary. It should facilitate your goals of growing your portfolio to a point where it is producing the growth or income you are aiming for. It should serve as a structure for you to stay in the game. A purchase plan takes into account a strategy, research, creating a list of targets, appraisals, due diligence, making an offer and negotiating.
Kenya is a large country, as an individual investor or/and real estate consultant, narrowing down investment opportunities to the best locations that will yield high returns and other benefits are of utmost importance to ensure you make the best decision. The trick in most cases is, the more central the location, the greater the demand. As an investor of commercial property especially, you must consider the location’s proximities to transportation. Furthermore, closeness to social amenities like hospitals and schools are also vital.
Constantly being informed about ongoing/new residential properties or/and commercial properties as an individual investor or/and real estate consultant is of great benefit. This helps make the right decisions based on the right and accurate information in the market. Real estate is an industry that is an extremely dynamic industry with changes occurring constantly, due to this, always being in the loop of events occurring within the country is critical.
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