Earlier this year, tenants of an apartment block in Ruaka,
Kiambu County, were
pleasantly surprised when their landlord slashed their monthly rent by Sh5,000.
pleasantly surprised when their landlord slashed their monthly rent by Sh5,000.
Property manager Bekam
Properties Ltd gave its clients residing in the deluxe apartments a
reprieve by lowering the payment for their two-bedroom houses from
Sh35,000 to Sh30,000, effective February 1.
Their
notice read, “ … in consideration of the prevailing economic situation
in Kenya, the landlord has decided to lower your monthly rent from
Sh35,000 to Sh30,000 with effect from February 1, 2020.”
Elsewhere,
it was an early Christmas for some traders in Dagoretti late last year
when their landlord reduced their monthly rent, citing tough times.
The
property’s manager, identified as Simon Ngugi, asked occupants of Muhu
Building on Naivasha Road in Dagoreti North to pay Sh2,000 less in rent
for their stalls beginning November 1, 2019.
The tenants had hitherto been paying Sh10,000 per month for each unit.
The decision, the manager said, was made in an effort to retain current tenants and attract new ones due to “serious business fall”.
The decision, the manager said, was made in an effort to retain current tenants and attract new ones due to “serious business fall”.
The move was a rare gesture given that the majority of Kenyan
property owners only revise rent upwards on the flimsiest of reasons,
including a fresh coat of paint.
FREE MONTHS
These are just a few of the numerous instances in which landlords and developers cut their charges in the past few months.
Some
proprietors are providing discounts such as a free months, longer
fit-out periods and other inducements to retain their tenants and
attract new ones.
But while these revisions may appear
an act of kindness to help struggling tenants meet their targets and
basic needs owing to tough economic times, a deeper look portends a
property sector in turbulence due to the economic slowdown alongside
sector-specific challenges that have seen the returns drop
significantly.
Industry players are unwittingly staring
at the likelihood of empty premises, devoid of customers, as the tough
economic times persist and the property sector gets saturated with
options.
They have resorted to using inducements as the
only possible means to ensure they retain their tenants as high rents
would only result in customers choosing more affordable options
available in the already bursting market.
The House
Price Index released earlier this year by property consultancy firm
HassConsult Ltd showed home prices in satellite towns declined by 50
basis points last year.
This is the first-ever drop since the survey was launched in 2008.
JOB LOSSES
The
decline was attributed to the challenging economic environment
witnessed during the period characterised by massive job losses and
company shutdowns.
Landlords are becoming less
demanding, especially in areas where there is an oversupply of similar
units, according to HassConsult’s head of development consulting Sakina
Hassanali.
Cytonn analysts and Knight Frank Kenya’s
first-half market update released in September both attributed the
gloomy performance in the commercial sector to an oversupply of retail
space.
The increased development of malls did not make matters easier as it heightened competition, especially for the low-end markets.
A
market update by Knight Frank Kenya showed that prime residential
prices fell by 1.8 percent over the same period, increasing the decline
to 6.7 percent in the period to June last year.
The
report held that these factors transformed the market in favour of
buyers and tenants, a perception that was then heightened by
multinationals continuing to downsize their investment while there were
fewer expatriates relocating to the country.
This combination of dynamics hurt the niche market.
Wacu
Mbugua, a market analyst at Cytonn, notes that oversupply of retail
space mostly hit the Nairobi metropolitan area, exhibited by the
cropping up of malls and low occupancy rates, and in turn lower rental
yields.
“The outlook for the sector is neutral and we
are likely to witness reduced development activity in Nairobi, with
developers shifting to county headquarters in some markets such as
Kiambu and Mt Kenya regions,” she says.
The shift to the outskirts such as Kiambu is believed to have caused the prices of property and rent to rise earlier in 2019.
LOWER RENTS
However,
in the last quarter of the year, property management companies began
sending notices to their clients indicating an intention to slash rent.
Ms
Hassanali says developers looking to make a killing in the lucrative
real estate market are now revising property and house prices if they
are to make any headway.
The House Price Index goes
further to show that rent in satellite towns dropped by 2.1 percent last
year, an indication that landlords reduced their demands in response to
the tough economic times and increased market supply.
As
a result of the value adjustment, Juja recorded the highest drop of 9.6
percent over the year, while in Nairobi suburbs, it also took a
downward turn, dropping 2.3 percent in the same period.
“Contrary
to what is universally believed, the rent rates in high-end areas such
as Lavington, Kileleshwa, Westlands and Loresho actually dropped in
2019,” the real estate consultant details, noting that Parklands
recorded the largest drop in rental prices of 5.2 percent over the year.
DEMAND RESURGENCE
Nonetheless,
Kenya’s capital is understood to be witnessing a resurgence of demand
from global investors eyeing bargains in select high-end properties.
The
country remains the favourite investment spot for foreign direct
investments and the reduced property prices blamed on price corrections
give buyers a reason to smile, according to the HassConsult Ltd property
adviser.
However not all property owners read from
this script, as some maintained their initial rent charges despite cries
from some tenants.
Mr Mundhir Abdirahim, a resident in
Eastleigh, decries the rising rates of rent in the area despite the
economic state of the country.
“Things are different in Eastleigh. Even when the economy is crumpling, landlords will keep asking for more,” he said.
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