By John Gachiri
In Summary
- Knight Frank says property prices in Nairobi’s high-end estates rose by 10 per cent in 2012, placing Kenya’s capital in position 11 out of 80 cities surveyed.
- The firm attributes drop to increased lending rates and political uncertainty in the run up to the polls.
Nairobi dropped 10 places in a ranking of the
world’s hottest high-end property markets as the high cost of loans and
political uncertainty slowed appreciation of house prices.
The Wealth Report 2013 by global property
consultancy Knight Frank shows average property prices in Nairobi’s
high-end estates rose by 10 per cent in 2012, placing Kenya’s capital in
position 11 out of 80 cities surveyed.
Knight Frank attributed Nairobi’s drop to the
increased lending rates, and political noise that heightened in the
months prior to the March 4 General Election.
Knight Frank (Kenya) managing director Ben Woodhams told the Business Daily
that attacks by Al-Shabaab terrorists, which prompted Kenya’s military
incursion into Somalia, had also tempered property price increases.
Indonesia’s capital city Jakarta was ranked the
hottest property market as prices in the city’s high-end estates rose
38.1 per cent, followed by Bali which recorded increases of 20 per cent,
Dubai-UAE (20 per cent), Miami-US (19.5 per cent), Sao Paolo-Brazil (14
per cent), Gstaad-Switzerland (13.2 per cent), Auckland-New Zealand
(12.7 per cent), Los Angeles, US, (12.5 per cent) and Shanghai, China,
(10.8 per cent).
The cost of borrowing rose sharply in late 2011
after the Central Bank of Kenya (CBK) increased its benchmark rate to 18
per cent from 6 per cent in a bid to stabilise the weakening shilling
and tame run-away inflation.
The domino effect was an increase in lending rates
for both developers and borrowers, which slowed uptake of construction
loans and mortgages as the cost of loans rose above 25 per cent.
Kimiti Wanjaria, a director of real estate
developers Serene Valley Properties, said high interest rates made it
costly for both developers and borrowers, slowing both construction and
uptake of complete units.
But for him the low point came midway through the
year, as election fever paralysed business. “Towards the third quarter
business plummeted because of the elections,” said Mr Wanjaria.
In its 2012 report, Knight Frank had foreseen the
General Election, high interest rates and insecurity in the Coastal
region as factors that would dethrone Nairobi and Mombasa from their
positions at the top two hottest property markets globally.
“Recent events such as the kidnapping of tourists
staying on the north coast and a sharp rise in interest rates to almost
25 per cent also highlight the potential vulnerability of some emerging
prime markets,” said the property firm’s Wealth Report 2012.
Despite the drop, Nairobi’s prime property market
rose the highest among Africa cities, and was only joined by Cape Town,
South Africa which took position 28. Average prices in equivalent areas
went up marginally by 1 per cent.
Property in Kenya’s Coastal areas did not make the
list in 2013 despite being placed second in 2011. Average prices in
high-end areas increased by 20 per cent at as per the 2012 report.
“The startling performance at the top end of
Kenya’s housing market is a particularly interesting example of this.
Price growth in both the Kenyan capital Nairobi and the country’s Indian
Ocean coastal hot spots outstripped all other Prime International
Residential Index (PIRI) locations, with Nairobi,” said the Wealth
Report 2012. Other reports also showed that Nairobi’s star-status dimmed
in 2012.
The Hass Consult Composite Index showed that returns in satellite towns outside Nairobi performed better than the capital.
The Hass Consult Composite Index looks at rental
yields and asking prices of stand-alone houses, town houses and
apartments across 43 suburbs in Nairobi and neighbouring counties.
At the time Hass Consult said that select suburbs
within Nairobi had “peaked”, which acted as an incentive for investors
to look outside Nairobi.
Hass Consult said that affordability in Nairobi’s
high-end areas was affected by high interest rates that discouraged
would be home-owners from taking loans.
Mr Woodhams said that the market has begun to
recover, with prices starting to go up after conclusion of elections and
interest rates beginning to fall.
Last week the CBK lowered the base rate by one
percentage point to 8.5 per cent, which ought to give commercial banks
the cue to start lowering their lending rates.
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