This is not the right time to invest in speculative real estate!

  November 21, 2023

A few months ago the real estate industry in Kenya was rated as the fastest growing and most profitable in the region. Prices were good and returns were unrivaled across the region. The rise and rise of prices has now hit the roof and the only way is DOWNWARDS!

The spiraling prices were perhaps not the true or perfect measure of the economic performance of the country or was it driven by developers' greed? Sales continued to rise as more and more developers joined the craze. Basic research could indicate over 1500 real estate developers in Kenya as at early 2019. Big number with annual housing need of over 200,000 houses in the country.

Apartments in Tatu City.

 

Where did the rain start ...

When we talk about property prices and how they have spiralled over the last 5 or 4 years, we can't ignoire the corruption pludge that has hit thsi country. Most units sold on cash as opposed to mortgages and installment purchase have driven the prices away from the reach of honest hardworking Kenyans.

Mortgage uptake as of end of 2018 stood at 20% of all the units sold as opposed to the 60% that was cash and cash installments. The effect of this causes quick feasts on property, low quality housing and prices that are independently directed by market rules of demand.

In a span of 3 yrs between 2014 and 2018, we had close to a 40% increase in housing prices as opposed to the previous 10%.

The CBK interest rate cap is also suppressing the housing uptake with commercial banks and mortgage providers being subjected to a fixed rate of 13 to 13.5% which in turn keeps buyers away.

The Stagnation...

Between 2018 August to date, we have experienced a stagnation in house prices especially townhouses and vilas in the up market. Apartments have become a favorite of the majority of prospects due to affordability and the rigid market terms. Experienced low uptake in uptown units like Kilimani, Lavington, Kitisuru and Runda.This has forced the uptake of units in mid income areas of Kiambu, Syokimau and Kajiado with most buyers preferring affordability over the luxury of city proximity.

We are also seeing an increase in mortgage uptake with the decrease in prices as more honest buyers flock back. The war on corruption could have been the black angel that will save the industry and enable more honest and hardworking citizens to invest in housing.

With the prices falling every quarter, we are most likely to have a 60% fall by end of 2019 which will then get the prices back in terms with the sustainable economic equilibrium. This in turn means that the value now could be subjected to a further low by January 2020.

For a home buyer, It is good to start now but for an investor, it's probably- most probably wise to wait and reap from the returns of the next 2 years.

It is also good to note that the mortgage rates could be going lower with the introduction of the Rent-To-Own terms which are more flexible and allow buyers to enjoy the freedom of lumpsum payments as they reside in their new homes.

Rent to own is a new strategy that is picking up and allows buyers to pay for houses as they use them on a compounded interest of up-to 20% in record 5 to 7 years. This, compared to the annual rates on mortgage is a much more friendly term that once developed will be a thing of fancy.

All in all, real estate in Kenya is still as exciting as always. Don't panic, the bubble is here but it won't be as big.