A recent survey found that only eight per cent of the working population can qualify for an average mortgage worth Sh6 million. Photo/FILE
Workers are finding it harder to buy plots for construction of residential houses within commuting distance to Nairobi due to a surge in land prices caused by improved roads and high demand for houses.
Plots in Kajiado, Kiambu, Ruaka, Kitengela, Ongata Rongai and Ruiru — which have traditionally attracted single dwelling unit developers are now costing about two times what they used to two years ago, putting off potential home owners who rely on unsecured bank and Sacco loans for construction.
“Three years ago, one would need about Sh3 million to buy land and put up a simple three-bedroom house. Now one needs as much as Sh5.5 million mainly due to the rising land prices,” said Mr Mwendwa Makathimo, the managing director of Vidmerck Kenya, a real estate firm.
Property experts say land should ideally not exceed a fifth of the total cost of a house but the prevailing land prices mean that up to a third of the capital outlay is being eaten up by land purchases.
In Ruiru, an eighth of an acre — the minimum portion for which a title deed can be issued — costs as much as Sh2 million along the Thika Highway, up from about Sh1.4 million last year and Sh350,000 in 2006.
Along the Namanga Road in Kitengela, 40 kilometres South East of Nairobi, a similar piece of land is selling for about Sh800,000, compared to Sh600,000 last year and Sh100,000 five years ago.
This presents the biggest hurdle for individuals targeting to develop homes, including those with a relatively decent monthly salary of Sh80,000 per month with interest rates now at between 11 per cent and 18 per cent.
With recent adjustments in the cost of building materials, it means a worker with an average salary cannot entirely count on personal savings, with the help of some borrowing, to own a home.
A recent survey found that only eight per cent of the working population can qualify for an average mortgage worth Sh6 million despite an array of mortgage products drawn by commercial banks with a repayment period of up to 20 years.
Assuming an interest rate of 15.5 per cent per annum, only people earning Sh80,000 and above would be eligible, forcing many to look for cheaper land in far flung areas which come with higher costs of commuting to work.
Mr Stephen Thuo, the managing director of Oldman Properties — a selling agent in Kitengela, says strong demand had pushed individual buyers deeper into sub-prime areas where land was more affordable.
“Individual buyers now have to move further from the city to find affordable land because more prime parcels are being taken up by commercial developers,” he said.
The entry of big institutions like the Kampala International University, hospitals and Saccos looking to buy land in bulk has piled pressure on prices, sidelining small buyers to the interiors.
Unlike individual owners, developers building high density settlements are able to spread the cost of land across many units, hence maximising returns especially in areas within a 20-kilometre radius from Nairobi’s Central Business District.
A three-bedroom unit sitting on an eighth of an acre on the outskirts is currently selling at about Sh5 million.
This amount is unaffordable to most middle-income earners, a prospect made worse by the rising demand for housing presented by a high migration into urban centres.
“Several organised groups are still buying huge parcels of land in the hope of developing them for members or future subdivision and sale to the public,” said Mr Noah Otieno, the treasurer at Wanandge Sacco.
He said asking prices for land in the Kitengela area were more than two times what they were a year ago.
The World Bank estimates that about half of the Kenyan population will be living in towns, a pointer that the current housing deficit could only get worse while cheaper homes remain a pipe dream for many.
Real estate firm HassConsult in its latest housing survey released last week said that the high land prices were the main drivers of the rising property prices.
“Prime development areas, such as Kiambu, have seen land prices rise four-fold in the last four years. As developers seek to cover these land costs, we are seeing them developing high-density housing, such as apartments and maisonettes,” said Ms Farhanna Hassanali, a property development manager at HassConsult.
The survey also revealed that lifestyle choices had made stand-alone houses the most desirable among buyers in the upper middle and high-end segment of the market - with the property appreciating by 15 per cent in the year to March.
Prof Robert Obudho, the head of department of Urban Planning at the University of Nairobi says the unfolding scenario is in line with urbanisation trends.
