Markets & Finance

Real estate and stock market get lion’s share of investments


Sandlewood Waterfront estate in Karen. Kenya’s super rich have invested a quarter of their wealth in real estate. FILE

Rich Kenyans have continued to bet big on the country’s booming real estate market, placing a quarter of their wealth in the sector that has more than doubled in size in the past decade, a new report says.

Out of a total asset base of Sh2.7 trillion ($31.4 billion) that the super-rich in Kenya control, the 8,300 high net worth individuals (HNWIs) have invested Sh705 billion ($8.2 billion) in real estate, giving it a mark of approval as the country’s top multiplier of wealth.

“In 2013, real estate was the largest asset class for the HNWIs in Kenya (26 per cent total HNWI assets), followed by equities (24 per cent), business interests (18 per cent), cash (12 per cent), fixed income (11 per cent) and alternatives (8.8 per cent),” says the report published by London-based research firm New World Wealth.

The report also shows that the super-rich are slowly returning to the fixed income market, nearly doubling their presence in there in the past five years.

The findings by New World Wealth are in line with recent market trends that have seen investments in high-end residential and commercial housing grow steadily as prices rise.

Property developer Knight Frank says the value of investments in the commercial segment of the real estate market grew at an average rate of 7.5 per cent in 2013 while investments in the residential segment appreciated 4.9 per cent.

This level of wealth multiplication has caught the attention of Kenya’s super-rich making them invest 19.5 per cent of their total assets in residential property, 5.4 per cent in commercial property and 1.3 per cent in foreign property in 2013.

The real estate investment market is expected to remain fairly flat in the next couple of years to account for 26.5 per cent of the wealthy’s total assets in 2017.

“With residential property prices now substantially flat and existing home owners and landlords no longer enjoying year on year capital appreciation, investment in property is beginning to lose its sparkle,” said Hass Consult head of marketing and research Sakina Hassanali at the launch of the 2013 property index on January 23.

But the report also shows Kenya’s wealthy have not taken their eyes off the equities market, which has created the highest number of the newly-rich.

Equities market was the second most favoured investment class for Kenya’s super-rich accounting for 23.9 per cent or Sh645 billion ($7.5 billion) of their total wealth.

The super-rich have invested Sh275.2 billion in Nairobi Securities Exchange-listed companies according to the report, meaning that this small group of individuals controls more than 10 per cent of total investor wealth at the bourse.

A sustained bull run at the NSE in the past two years has seen these investors more than double their wealth, a trend that is expected to continue in the next four years.

READ: Stock market earns investors highest returns in 2013

Over the past five years, however, these individuals have reduced their investments in equities from 25.7 per cent to 23.9 percent, a development that appears to be informed by the fact that the super-rich may be harvesting part of their holdings through property sales.

The New World Wealth report shows that rich Kenyans cut their holdings of foreign equity from 15.12 per cent to 13.6 per cent of their total wealth in the wake of the global financial crisis and the subsequent recession in developed economies.

They have, however, raised their presence in the fixed income market where they now have Sh223.6 billion or 8.3 per cent of total assets up from 5.5 per cent five years ago.

Investors in this asset class put their money in Treasury bills and bonds, which are mainly popular because of the low level risk and the steady rise of yields in the past five years.

Investments held in business interests stood at 17.8 per cent of total assets in 2013 or Sh481 billion ($5.6 billion) and is expected to continue growing this year.

The emergence of a new crop of high net worth individuals in construction, real estate, telecoms, banking, transport and logistics industries has convinced market watchers to project that the rich will increase their holdings in this area to 18.2 per cent in 2017 to Sh645 billion ($7.5 billion).