The
real estate sector recorded an improved performance in 2019/ 20 despite
the
pandemic recording average total returns of 5 per cent up from 4.7
per cent in 2018/19, according to a recent Cytonn report.
“The
improved performance was on account of continued growth in the rental
market with average rents increasing to Sh536 per square meter in 2020
from Sh532 per square meter the previous year,” the report noted.
The sales market also continued to record a price correction amidst a tough economic environment
The
report themed “A Buyer’s Market amidst A Global Crisis’’, noted that
the residential sector is expected to continue showing resilience with
activity picking up pace as the economy regains momentum in Q3’2020.
Dagoretti,
Ridgeways and Thindigua were the best performing markets with average
annual returns of 9.3 per cent, 8.5 per cent and 7.9 per cent,
respectively.
Apartments recorded strong rental yields with areas
like Dagoretti and South C achieving average rental yields up to 6.2 per
cent.
“While the overall market improved, apartments continued to
perform better, registering average total returns of 5.3 per cent,
compared to detached units at 4.6 per cent,” noted Cytonn Real Estate’s
Research Analyst Wacu Mbugua.
Wacu however noted that due to the
pandemic, detached units such as bungalows in the lower mid-end areas
are expected to attract more interest from buyers.
Overall,
average rental yields improved significantly to 5 per cent from 4.3 per
cent last year, indicating sustained demand for rental housing whereas
demand for sale houses declined amidst a tough financial environment
leading to decline in average price appreciation.
According to the
report, Dagoretti and Thindigua were the best performing apartment
nodes with average returns of 9.3 per cent and 7.9 per cent,
respectively, driven by the continued demand from young middle and
working populations due to affordability and proximity to key
commercial.
Kahawa
West and Ngong recorded the lowest returns on account of decline in
asking prices in the areas, attributable to loss of appeal as homebuyers
opted for other lower mid-end areas with better infrastructure and
closer to CBD especially in the case of Ngong.
For detached units,
Ridgeways recorded the highest price appreciation and annual returns at
3 per cent and 8.5 per cent, respectively, compared to the detached
markets averages of 0.1 per cent and 4.6 per cent.
The area’s
performance is boosted by the relatively low supply coupled by presence
of good infrastructure and amenities as well as proximity to Runda and
Muthaiga, which are high-end areas.
The report also ranked the
most attractive investment opportunities out of the 31 sub-markets in
Nairobi Metropolis, Ruaka and Westlands ranked as the best opportunity
for apartments driven by relatively high uptake at 23.9 per cent and
22.6 per cent, respectively.
Runda Mumwe and Ruiru present the
best opportunity for detached units driven by relatively high returns of
5.5 per cent and 5.8 per cent, respectively, in comparison to the
detached market average of 4.6 per cent.
“In terms of supply, the
sector is expected to experience a slowdown in construction activities,
due to the pandemic that has resulted in supply chains disruption,
reduced revenues for developers coupled by high development costs and
insufficient access to credit,” Wacu concluded.
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