Lessons from 2019 property market fall

Thursday, February 6th, 2020 00:00 | By
Amara Ridge luxury homes developed by Cytonn Real Estate in Karen, Nairobi. Photo/PD/File

Wahinya Henry and Milliam Murigi 

House prices recorded an overall decline in most areas of Nairobi last year due to an economic slow down that particularly hit the middle-class, market researchers say.

And although apartments continue to lure buyers as opposed to bungalows and maisonnets, most buyers increasingly prefer to buy plots in city outskirts and build over time as the economy remains uncertain.

  “Whenever there is an economic slowdown, the first people that get hit is the middle class.

Satellite towns where the middle-class reside have, therefore seen an immediate shift,” said Hass Consult Head of Research Sakina Hassanali. 

Thousands of workers working for banks (more than 5,000), plantations, security firms, factories, media houses and contractors were retrenched last year while many small businesses closed shop.

The gloomy economy pushed back the purchasing power of the middle class, the prime target for most developers. 

Cytonn Investments says there has been a steady demand for low middle-income housing in far-flung Nairobi’s metropolis as tenants opted for cheaper units in the wake of the prevailing high cost of living and uncertainty in the economic environment.  

The crisis is also forcing developers to re-strategise their portfolio mix after a glut in office space and in high-end housing saw returns decline compared to earnings from housing units targeting the middle-class families.   

Non-performing loans

An analysis of price movements by the Kenya Bankers Association House Price Index (KBA-HPI) for Quarter Four 2019 says home prices fell by 0.61 per cent compared to 2.28 per cent decline  reported in the prior quarter.

The Index further associates the sustained decline in prices to an elevated level of non-performing loans in real estate and construction sectors, which has contributed to the prices slump by constricting private sector growth.

And releasing the 2019 Quarter Four Hassconsult House Price Index, Hassanali said house prices declined by 0.5 per cent for the first time in 12-years while rents fell by 2.1 per cent during the same period.

Property investors in Juja were hit hardest by falling prices in the past 11 months following prices slips of up to a 9.6 per cent, more than six per cent below average, while landlords in Kiserian saw the greatest decline in rental prices (7.8 per cent), said Hassconsult. 

Ridgeways had the highest return on home sales while Kitisuru topped the suburbs with the highest return on land.

However, Kenyans’ insatiable demand for land continued to prop up land prices, with some locations recording price growth of as high as 10 per cent for the year (Kitengela).

In general, land prices in satellite towns jumped 6.93 per cent while land in Nairobi suburbs appreciated by just 1.69 per cent.

Apartments retained dominance, but recorded a decline in market share from 85 per cent to 74 per cent, according to KBA-HPI. Going forward, privacy and security in apartments will continue to lure buyers. 

Last year, preference for maisonettes rose from 10 per cent in the past quarter to 17 per cent, with bungalows registering a preference rate of nine per cent.

Diaspora inflows 

Overall, homes with more bedrooms, bathrooms and plinth areas attracted higher prices.

“This negative feedback loop has clouded the house market outlook and led to price rediscovery in favour of a downward correction,” said KBA Director of Research and Policy on Financial Markets, Jared Osoro. 

The outlook for 2020, Hasanali said, “I’m hoping 2019 is the worst of it. From what I’ve seen in January we are quite positive. We expect to see more growth from more money in the market to create a sector upturn,” she said. 

George Wachuiri, CEO Optiven Group, is hoping  that the government will fulfil its promise not only to pay suppliers the more than Sh65 billion in pending bills, but that tax refunds will be accelerated this year.

“Also giving us hope is the increase in diaspora remittances that is projected to go past Sh250 billion this year, according to Central Bank,” he says. 

He says Kenyans continue giving high preference to real estate investments. “According to a 2018 survey conducted by a local pension administrator, Enwealth Financial Services and Strathmore University, 62.8 per cent of Kenyans opt for land and real estate when it comes to investments,” says Wachiuri. 

Political stability and new infrastructure projects is also encouraging developers to move out of the city to the suburbs.

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