Nairobi land dealers nearly double prices in 12 months

Land prices in prime sections of Nairobi and surrounding districts nearly doubled in the past 12 months riding on increased demand from real estate investors racing to cash in on Kenya’s booming property market.

Latest market data indicates that prices rose by the highest margins in for the popular eighth of an acre pieces in prime real estate areas along Thika, Kiambu and Mombasa roads.

In Kiambu town on the outskirts of Nairobi, for instance, an eighth of an acre of what has mainly been coffee estates now costs an average of Sh1.2 million up from Sh700,000 in December last year.

A similar piece of land in Mlolongo along Mombasa Road is now priced at Sh1.6 million up from Sh900,000 12 months ago while in Kahawa West on Thika Road, prices have risen to an average of Sh1.5 million from Sh900,000.

“We expect this trend to continue, especially with the rise in speculative activity that has come with the entry of institutional investors into the property market,” said Reginald Okumu, a director at Ark Consultants — a property developer.

Mr Okumu said the rapid appreciation in the cost of land reflects the heavy rise in demand for land as developers move in to large real estate projects targeted at the lower middle segment of the market where demand for houses is highest and supply shortage most acute.

The shortage of land is also being blamed on the continued holding by the government, local authorities, schools and churches of large tracts of land that is forcing developers to look outside the city where speculators have taken position, artificially driving prices up.

Mr Okumu says this surge in prices has pushed the cost of building family homes up by large margins making land to account for up to 50 per cent of a modest three bedroom home up from 15 per cent to 25 per cent in 2007.

Rental houses

This has made it difficult for the growing number of middle class to own homes because their savings cannot keep pace with the property prices.

Inability by the middle class to own homes means demand for rental houses will continue to build up in the medium term setting the stage for an for fresh round of increase in rents across this segment of the property market.

More recently, the bulk of Kenya’s working class, who have traditionally relied on cooperative society loans to acquire land and build homes are increasingly being priced out of the property market.

The majority of this class of home owners are now being forced to move deeper into places such as Isinya, Athi River and Thika that are more than 50 kilometers from Nairobi’s CBD, as cash flush investors such as pension scheme, Sacco’s and foreign investors take prime land in central Nairobi.  

“It’s getting difficult to get land even in areas like Mavoko Municipality where land was abundant just recently,” James Mworia, the CEO of Centum Investments, which plans to invest more than Sh2 billion in the real estate market, said in earlier interview

The listed investment fund is now looking for land of between 100 and 500 acres in Nairobi and Kampala, hoping to reap from the property boom as it diversifies its investment mix away from equities market.

Rapid urbanization, steady population growth and expansion of the middle class have emerged as the main drivers of Kenya’s property market that is facing nearly three decades of under investment in the mid tier segment causing prices to rise by more than three and a half times since 2003.

The outsized returns from the property market have encouraged the flow of the billions of shillings into real estate pushing land prices to record levels.  

The most astronomical price increases for plots in the recent past have been along Thika Road, notably the stretch between Kenyatta University and Juja

Between Ruiru and Juja, for example, the price of an eighth of an acre has risen from Sh1.5 million in 2009 to the current price of Sh2.5 million.

The same applies to Ruai and Embakasi’s Utawala that have recently benefitted from infrastructure upgrade with the construction of the Eastern and Northern bypass roads.

Three highways

These roads link three highways; Mombasa Road, Thika Road and the Waiyaki Way making the outlying areas more accessible and reducing city centre congestion.

In Kiambu county, especially Rwaka area where an eighth of an acre now costs up to Sh6 million up from Sh4 million last year, proximity to Nairobi’s leafy western suburbs, including the United Nations office in Nairobi and the CBD are said to be the main drivers of prices.

Property dealers said demand from institutional investors and presence of foreign money in the real estate market is the latest addition to the pricing pressure that is expected to accelerate next year.

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 Centum Investment, National Housing Corporation, National Social Security Fund (NSSF) and Renaissance Capital, the Moscow-based investment bank, to spend billions of shillings in Kenya’s real estate market.

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 populations, 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 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.

Rising activity

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.  

The increased activity of the property developers is reflecting in the loan book of bankers as real estate loan growth has outpaced that of credit to businesses and households in the year to September.

Data from Central Bank of Kenya (CBK) indicates that net lending to real estate grew by Sh36.6 billion to Sh93 billion in the year to September.

“The borrowers were mainly developers doing projects for the middle-class along Mombasa Road, Thika Road and Kiambu Road, this pushed up our loans by about 18 per cent, “ said George Laboso, the head of sales at S&L, the mortgage arm of Kenya Commercial Bank.

Charles Kibiru, the CEO of Thika Green Limited, which is constructing 800 residential units in Thika, says that the demand is now spilling over to outlying towns.

“When we bought phase three of this project a year ago, an acre of land was going for Sh1.4 million. Today, the same is going for about Sh4 million,” said Mr Kibiru.