House prices defy global economic crisis to ride high

The Kenyan property market is offering higher returns than more mature markets in the US and UK ever since the global financial crisis, according to a recent housing survey.

The Hass Property Index that sought to analyse sector trends covering the period up to the end of the first half of the year indicates residential houses have appreciated by as much as 120 per cent in Kenya since 2005 while they have depreciated by as much as 20 per cent in the US and stagnated in the UK.

Among the adjustments that have been considered in drawing the comparison are foreign exchange values and inflation differentials.

According to the report, an investor from the UK would have made the highest capital gains of about 120 per cent while an investor from the US would have seen their investment increase by as much as 95 per cent had they invested in Kenya in the last quarter of 2005 and held the investment to date.

Industry players have however noted that the prices have since the third quarter of 2009, stabilised owing to the evening-out of the demand supply disparity in the local high-end housing market.

“What is clear is that residential housing in Kenya has been a phenomenal investment in international terms, and has gone virtually unscathed by the financial crisis or Kenya’s own economic setbacks,” says the management firm.

This is in line with opinions from players in other sectors who have noted that Kenya has offered outstanding investment opportunities devoid of risk, since the economy is sufficiently cushioned from the adverse effects of the global economy.

New revelations from the study have confirmed earlier indications that the rental market has been snatched by mortgage-offering financial institutions that have provided more people with the opportunity to own homes.

“The growth area in the housing market at present is in new home-owners, with more middle-class home buyers entering the market backed by mortgages in their purchases, whereas previously, most properties were being bought by upper middle-class Kenyans with cash,” said Ms Jenny Luesby, one of the consultants behind the index.

Despite the survey indicating that rental income from residential property in high-end areas largely stagnating for most of 2009 to date, individual letting agents have reported offers that are as much as 15 per cent lower over the last 18 months.

“I think the over-supply in the high-end housing market has forced prices down, with new owners getting up to 15 per cent less in rent,” says Mr Daniel Biwott who manages several apartments within Kilimani and Kileleshwa in Nairobi.

Investors who may be interested in purchasing finished property for rental purposes have been cautioned amid fears that the prices in the market are yet to fully correct themselves, especially in the high end segment.

Moving forward, the survey predicts insignificant upward changes in property prices in the high end market which some professionals have noted would in the best case scenario stagnate.

New demand would likely be driven by a growing optimism in the market amongst consumers rather than real development in the housing sector.

This is premised on the fact that the middle class has better incomes, but at the same time have more opportunities to own homes rather than rent.

Hass consultants will be developing an index for different market segments to enable sector players including investors to identify the specific trends amongst the different classes of housing consumers, since the current index has a bias towards the upper and middle upper segments of the market.