Opinion and Analysis
A section of the upmarket Runda Estate in Nairobi. High prices of
property in the city have locked out middle-class home buyers, leaving
the real estate sector in the hands of few wealthy Kenyans. PHOTO | FILE
| NATION MEDIA GROUP
By Wallace Kantai
In Summary
Of all the tasks that make up daily life, I
particularly hate shining my shoes. This generally leads to two
outcomes: I’m often guilty of wearing smart suits with scuffed shoes.
Importantly for Nairobi’s economy is the second outcome — the
shoeshiners around Nation Centre tend to have a very loyal customer.
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I get two benefits out of this: I get a nice, gleaming pair
of shoes, and I tend to overhear some very interesting conversations.
Take the other week, for instance. As I was getting
my shoes polished, the shoeshiner was multitasking — on the one hand
busy with brushes and soft cloths; on the other having a rapid-fire
conversation with a friend of his. The content of the conversation was
what was striking.
The two gents discussed the acquisition of a
building in downtown Nairobi for the princely sum of “three-fifte”
(presumably Sh350 million). The discussion went on at length (which led
to my hope that the shoeshiner would be uncharacteristically slow that
day).
From the conversation, it emerged that the two men
were third tier agents of some sort — at the periphery of the property
industry — but the conversation was eye-opening all the same.
It is said that one sure sign of the impending
stock market crash in 1920s America was when paper boys and (you guessed
it) shoeshiners began avidly discussing stock tips with their
customers.
Before the 2008 crash, again, the canary in the
coalmine was when everyone was a day trader (or at least entertained
themselves by watching day traders on financial news channels). Kenyan
shoeshiners discussing hundreds of millions of shillings in property
investment may soon be written about in business books as the sign of a
frothy time.
There is no doubt in my mind whatsoever that the
Kenyan — and especially Nairobi — property market is caught in the
throes of a seriously overvalued market. Professionals in the industry,
being interested parties, often disagree, but the property market long
ago broke the laws of financial physics and took off into the
stratosphere.
One-acre plots changing hands at hundreds of
millions of shillings. Properties doubling in price in 18 months.
Three-bedroom apartments with no amenities to speak of selling at prices
in excess of Sh20 million.
The sign of the times for me was a few months ago,
when I saw a listing in the newspaper for land sale in Lavington,
Nairobi, of around Sh125 million an acre. This is more expensive than
beachfront land in Greenwich, Connecticut (an online listing last week
had a 5.6 acre property there selling at the equivalent of around Sh55
million an acre).
Why is Greenwich significant? It is the bedroom
community for New York City, and also headquarters of many of America’s
hedge funds. This is a town which is called home by the famed “Masters
of the Universe” of the financial industry – people whose wealth is
measured in the billions of dollars.
And that property in Lavington? In the face of
properties valued upwards of half a billion shillings, that price now
seems quaint.
The arguments about demand and supply may be
half-valid, but they long ago ceased making any sort of sense.
Speculators of all kinds now seem to be on the loose, and the result is a
housing market that has priced itself out of reach of the middle class.
Let me illustrate this. A two bedroom flat in
Westlands (information, again, gleaned from random listings online)
rents at Sh75,000. The equivalent apartment costs Sh18 million.
Therefore, if one was to finance it through a
mortgage (with a 10 per cent down payment, 15-year period, and at 10.9
per cent, currently the best rate on the market), one would be forking
out Sh194,000 per month in mortgage payments to the bank.
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