Market prices for Kenya’s luxury property rose by the highest margins globally last year, defying a surge in lending rates and a weak global economy, according to a new research report.
The Wealth Report 2012 by Knight Frank and Citi Private Bank, a subsidiary of Citigroup, showed that property prices in Nairobi and the coastal region increased by double-digits, earning the two them first and second positions respectively of 71 cities surveyed globally.
Nairobi and Mombasa were the only cities in the “southern hemisphere” to have reported double digit property price increases.
“The startling performance at the top-end of Kenya’s housing market is particularly interesting. Price growth in both the Kenyan capital Nairobi and the country’s Indian Ocean coastal hot spots outstripped all other Prime International Residential Index locations, with Nairobi property chalking up a 25 per cent increase last year,” said the report.
The coastal region was second with a 20 per cent increase in luxury property prices over the same period.
Miami was third at 19.1 per cent, Bali (15 per cent), Jakarta (14.3 per cent), London (12.1 per cent), Vancouver (10.4 per cent), Moscow (9.8 per cent), Toronto (8.5 per cent) and Beijing (8.1 per cent).
The two Kenyan cities were placed in the “safe haven” category of the report, which indicates the best places for investors to put their money.
“Safe haven isn’t necessarily a phrase many people would use to describe the country in a global context, but compared with many of its neighbours it is just that, according to Ben Woodhams, managing director of Knight Frank Kenya,” says the wealth report.
Mr Woodhams attributes the surge in luxury property prices to increased demand being driven by infrastructure development and economic growth, which have attracted local and international capital flows.
Inflows from Kenyans in the diaspora are particularly significant in driving the prices, the report notes.
Despite the increase in the cost of luxury property, the report said that buying a square metre of land in Nairobi and Mombasa is still cheaper than other cities such as Monaco.
Of the 71 cities included in the report, with respect to property prices, a square metre in Nairobi costs $1,700 or Sh141,000, barely three per cent the $58,300 or Sh4.8 million a buyer would have to pay in Monaco.
The report, however, says Mombasa and Nairobi are not likely to record appreciation of property prices in the long-term due to security concerns and uncertainty over lending rates.
“Recent events such as the kidnapping of tourists staying in the North Coast and a sharp rise in interest rates to almost 25 per cent also highlight the potential vulnerability of some emerging prime markets,” says the report.
The Central Bank of Kenya increased its base lending rate to 18 per cent by end of last year from six per cent, which nudged commercial banks to follow suit with the average base rate rising sharply to about 25 per cent.