Nairobi gets mega real estate plan from Russia

Renaissance Capital, the Moscow-based investment bank, will on Tuesday launch a Sh200 billion real estate project it says should become a visible symbol of Kenya’s leadership in urban renewal and reaffirm Nairobi’s position as East Africa’s economic hub.

The mega project, to be officially launched by President Kibaki, involves the use of private capital to construct a whole new city of 62,000 residents who will live in a well planned environment of manicured homes, office blocks, shopping malls and industrial parks.

Kenya’s biggest real estate project, dubbed Tatu City, will be located on 1,000 hectares piece of land in Kiambu County, behind Kenyatta University, that is currently occupied by coffee plantations.

The project is in its conception and magnitude only comparable to South Africa’s Sandton City, the leafy and exclusive high-end of market piece of real estate that was built on the outskirts of Johannesburg by the apartheid government.

But unlike Sandton, which was mainly driven by the government, Tatu is a purely private sector driven plan that is 50 per cent owned by Renaissance Capital while the remaining shares will be held by a number of foreign investors and local partners led by former Central Bank of Kenya governor Nahashon Nyaga.

Location of the project in Kiambu County’s coffee plantations, which are close to the United Nations offices in Nairobi and the leafy suburbs of Runda and Muthaiga clearly, signals the intention of its creators to target the cream of Kenya’s real estate buyers that includes international civil servants, top businessmen and civil servants whose numbers are expected to rise significantly in the next two decades.

Tatu City is also expected to more than double the value of land in parts of Kiambu County that are close to the project site as other private developers rush in to ride on the state of the art infrastructure that is expected to come with it.

Renaissance Capital’s local contact, Patrick Mweheire, declined to comment on this story, but property investor’s familiar with the project said it is expected to cost between Sh200billion and Sh240 billion over a period of 10 years.

The Tatu City project is also significant in the fact that it stands to be the single largest private-sector driven direct foreign investment in Kenya with the potential of dramatically transforming Kenya’s real estate landscape.

The project has already been show-cased to foreign investors at the prestigious annual property conference in Cannes, France — a signal that Renaissance Capital is keen to tap investors who have identified Africa as next frontier of investment as growth stalls in the US and Europe.

The Russian investment bank is, however, not alone in betting on Kenya’s property market from outside.

It joins a string of prominent investors including India’s Mukesh Ambani, the world’s fourth richest man; Dutch Hello Properties, Iran’s Mahun Construction and England’s Nigel Rowley who have in the past one year invested billions of shillings into Kenya’s real estate market.

Property developers attribute the growing presence of foreign money into Kenya’s real estate market to the robust growth that has seen smaller investors reap outsized returns.

“International investors have been in this market in the past five years, but they have been testing the waters with smaller projects and are now going big confident that the market is a long way from reaching its peak,” Bath Ragallo, a director of Tysons Management - a leading real estate consultancy in Kenya — told the Business Daily in an interview.

“International investors are looking for opportunities in markets that offer attractive returns given the bearish property and stock markets in the developed economies,” said Friso Abbing, the managing director of Hello Properties—which has built luxurious town houses in Karen, Mombasa and Watamu.

Hello set up shop in Kenya in 2005 to exclusively serve the high end of the market with invitations to investors to co-own its real estate assets for a minimum of 50,000 euros (Sh5.6 million) and in similar multiples thereafter with the expatriate community and European investors as its target.

Rapid urbanisation, population growth and expansion of the middle class remain the main drivers of Kenya’s property market that is riding on nearly three decades of under investment in mid tier segment of housing. 

Property market analysts say the rising rent and home prices that has gripped Nairobi and other urban centers will continue to hold further underlining real estate as an asset class of premium returns relative to equities, bonds and bank deposits.

The rally in house prices have some Kenyans worried that a bubble may be shaping up, but most analysts say there is plenty of room for the upward momentum.

This is what is attracting the likes of Mr Ambani to spend billions of shillings in Kenya’s real estate market.

The Indian tycoon, through Delta properties, is building two office blocks in Nairobi’s Westlands and Upper hill areas, and is about to start construction of a five star hotel in the Central Business District (CBD).

Nigel Rowley of England, another real estate developer, will set shop in Kenya in the fourth quarter of the year modelling its business around that of Hello properties.

Iran’s Mahun Construction is also scouting for joint venture real estate deals in Kenya and has already signed one with the National Housing Corporation for construction of between 2,000 and 3,000 units worth Sh6 billion for the mid and low end of the market.

Key drivers

Swelling incomes and large numbers of young people moving to urban centres and starting families, are seen as yet the other key drivers of demand across all asset classes.

Kenya is adding one million people annually to its 38.6 million population, 22 per cent of which is between 15-24 years.

At present, 32.2 per cent of Kenyans or 12.4 million live in urban residents, up from 23.6 per cent or 5.6 million in 1990—assuring property developers of demand that has seen the prices of apartments in Nairobi’s middle-income areas more than double in the five years.

This has seen the property asset class outperform the Nairobi Stock Exchange (NSE) over the past decade, according to a survey by CFC Stanbic.

CFC Stanbic says that property prices have risen 3.5 times over the past decade compared to share prices appreciation of 2.42 times over the same period.

The NSE has been the premier investment destination for foreign investors but the property market is fast catching up.

Kenya’s only property index, conducted by real estate agency HassConsult, shows prices Property prices rose by 2.6 per cent and rents jumped four per cent in the three months to October 1 after stagnating in the first half of the year.

The rising activity in the real estate market made the construction sector the best performing sector in quarter two with an 18 per cent growth and contributed 11.0 percent of gross domestic product.

Besides boosting the economy, the hyper activity is shaping the fortunes of auxiliary sectors such as mortgage providers, cement makers, paint manufacturers and corrugated sheets maker.  

For Renaissance Capital, entry into the property market offers it an opportunity to reap outsized returns as it has failed to break into Kenya’s top league on the stockbrokerage and investment banking front.

The Russian investment bank set shop in Kenya in 2007 and gained the stock broking licence the same year after buying the trading seat of collapsed Francis Thuo and partners for Sh251 million.

But they have continued to play second fiddle to Dyer and Blair, Kestrel Capital and Standard Investment banks in shepherding deals and trading of shares at the NSE.

In 2009, it announced an income of Sh113.1 million, placing its seventh after Dyer and Blair that was ranked first with Sh241.6 million and Kestrel coming second with Sh173.3 million.

However, Renaissance Capital’s expenses at Sh261 million came second to Dyer and Blair’s Sh285 million, a pointer that its high staff costs played a part in its Sh43.5 million loss in 2009.