A house in Karen, Nairobi. FILE PHOTO | NMG
Home prices in Nairobi have increased at the fastest pace in 11 years on the back of renewed demand from buyers who had slowed down acquisitions at the peak of Covid-19 economic hardships.
Data by realtor HassConsult show the price of an average house within the city rose 10.5 percent in the year to June compared to a drop of 1.7 percent in the same period a year earlier.
This is the fastest increase since 2011 when the growth stood at 15.7 percent, reflecting property market recovery from the effects of the Covid-19 pandemic.
The increase in the cost of building materials, including steel, paint, and cement, has also upped pressure on home prices.
Standalone homes in Langata, Spring Valley and Westlands recorded the sharpest price gains in the period that saw Ngong and Ongata Rongai having the biggest rise among satellite towns outside the capital.
Langata’s house price rise came on the back of affordability relative to other city suburbs where homes are sold at a premium.
"This [price increase] comes at a time of global inflationary pressures on supply inputs coupled with a renewed vigour in the property market after a few years of market constancy and global market stagnation," said Sakina Hassanali, head of development consulting and research at HassConsult.
A 50-kg bag of cement is currently retailing at between Sh850 and Sh900, up from Sh650 last year. Developers tend to pass such costs to the final home buyer.
Real estate was among the worst-hit sectors by the economic fallout of the pandemic as orders by new house buyers dried up, largely due to income and job losses, cautious lending by banks, and investors choosing to keep their cash in hand as they rode out the economic uncertainty.
The sector had been one of Kenya’s fastest-growing in the decade to 2015, with returns outpacing equities and government securities.
Home prices dropped in Runda and Muthaiga by 2.4 percent to Sh93.5 million and 0.5 percent to Sh84.5 million respectively. In Karen, the price fell by 0.1 percent to Sh89.5 million.
Kitisuru and Nyari, which like Muthaiga and Runda fall within the diplomatic blue zone, recorded price increases of 7.3 percent and 5.1 percent to Sh92.5 million and Sh111.2 million respectively.
Gigiri remained the costliest neighbourhood, with average home prices rising 1.6 percent to Sh112.7 million.
The rise in home prices came on the back of the rebound in Kenya’s economy last year, with growth at the fastest pace in 11 years on easing of Covid-19 restrictions.
The economy is forecast to grow 5.5 percent this year from 7.5 percent in 2021, with the slowdown linked to the knock-on effects of the war in Ukraine, the World Bank said.
The bank forecast in an economic update on Kenya that gross domestic product (GDP) growth would average 5.2 percent in 2023-24.
Kenya suffered its first contraction in nearly three decades in 2020, when GDP fell 0.3 percent, as the Covid-19 pandemic damaged key sectors like tourism.
The 10.5 percent price appreciation, coupled with a 2.4 percent appreciation in rental yields over the period, have thus returned real estate to the top end of asset class returns in the country, after years of lagging fixed income and equities in reward to investors.
Government securities, which form the bulk of fixed income assets in the country, have offered investors between 7.2 percent and 14 percent in interest across the spectrum of tenors, while the Nairobi Securities Exchange (NSE) All Share Index is down 16 percent this year.
"The net effect of property prices and rents jointly moving up is that the total property returns (capital gains and rental yields) are now up at 16.26 percent per annum. These returns are superior to other asset classes and safer hedges against inflation," said Ms Hassanali.
This rebound has given house buyers the confidence to invest in real estate, while developers are also able to move ahead with projects that they had put on ice due to the prospects of a revival of the rental market.
Detached houses have therefore continued to be the more popular choice among buyers, recording the highest rise in prices in the period at 16.8 percent, outdoing semi-detached units whose prices rose by 1.6 percent. Apartment asking prices shrank by 0.9 percent.
Among Nairobi’s satellite towns, standalone units in Ongata Rongai recorded the highest price increase at 13 percent.
The demand in satellite towns has been driven by improved infrastructure linkages with the city and amenities such as hospitals and schools, allowing more people to settle further from the city.
Land is also more affordable and readily available in the satellite towns compared to the suburbs, meaning that developers are able to put up more affordable units that are attracting new home buyers.
cmwaniki@ke.nationmedia.com
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