Growing middle class demand drives Nairobi’s home prices

The country’s housing market continues to be driven by middle class Kenyans’ desire to own homes, with demand from them pushing up prices and sales volumes in the first six months of the year, the latest industry report says.

The Hass Property Index’s second quarter report shows that buying prices for semi-detached houses and apartments were up 6.7 per cent and 1.5 per cent respectively, compared to a 2.1 per cent decline in the standalone or detached housing units popular with the upper income group.

The findings represent a complete departure from the first half of 2013, when growth was highest in the standalone residential housing segment and unit prices rose at 10.3 per cent, compared to 6.6 per cent for apartments and 0.1 per cent for the semi-detached units.

Hass Consult property development director Farhana Hassanali said the rental prices for residential houses rose much faster than the sale prices as more people are pushed into the rental market by the high cost of mortgage and a tightening economic environment.

“Improved returns are the main drivers of the renewed interest in semi-detached units, whose prices rose by 3.3 per cent in the second quarter. The reality of ‘buy-to-rent’ investment remains evident,” said Ms Hassanali.

The average price for an apartment in Nairobi is Sh12.7 million, a semi-detached house Sh20.4 million and a detached one Sh35.2 million, according to the report.

The rise in both prices and rents in the middle income segment of the market is expected to exert more pressure on the budgets of middle income households that are experiencing higher-level inflation in housing and energy costs this year, according to official data.

The Kenya National Bureau of Statistics’ (KNBS) latest report shows that the Consumer Price Index (CPI) for housing, water and energy, which accounts for a fifth of middle income household budgets, rose by 3.2 per cent in Nairobi in the first six months of the year.

This compares unfavourably with the 2.8 per cent rise for the lower and upper income groups which closed at 145.7 and 121.9 points respectively.

The HassConsult report shows that growth of middle class house rent yields stayed in line with last year’s, clocking 16 per cent for semi detached houses and 8.2 per cent for apartments respectively.

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In June 2013 the yields grew at the rate of 17.6 per cent and 6.1 per cent for the semi detached and apartments respectively.

Growth in rent yields for detached houses nearly halved from 14.7 per cent in the six months through June 2013 to 8.5 per cent this year.

Embakasi, a predominantly middle income area, has emerged as Nairobi’s leading property hotspot, where developers are attracted by availability of land and ease of getting building approvals, the developers lobby said.

Kenya Property Developers Association (KPDA) and Hass Consult in April published a report showing that more than 1,200 planning applications were made in Embakasi last year, driven by rising middle class demand for homes.

The area has also been helped by a friendly zoning policy that allows for varied use of land, especially for setting up of apartments.

The HassConsult report says the mortgage market is expected to improve once lenders fully adopt the recently launched Annual Percentage rate (APR).

Caroline Kariuki, the managing director of The Mortgage Company (TMC), said that the combination of the APR and the Kenya Banks’ Reference Rate (KBRR) have the potential to energise the mortgage market by removing doubts over hidden costs.

“This will go a long way in enabling borrowers to have a full view of commitments they are making with the loans without any hidden costs. The reform agenda at the Lands ministry means titling is also becoming more efficient and reliable opening up the industry for the secondary mortgage market,” said Ms Kariuki.

According to TMC, the average mortgage rate for the top 15 lenders fell to 15.7 per cent in June 2013, from 17 per cent.

Standard Chartered cut its mortgage rate by three per cent to 10.9 per cent while KCB’s S&L fell 1.6 per cent to 12.9 per cent in the second quarter. Both are promotional rates.