Land, house prices decline on Covid-19 slowdown

House and land prices dropped in Nairobi and the surrounding counties of Kiambu, Kajiado and Machakos in the three months to June due to low demand in the wake of the coronavirus pandemic.

HassConsult, which conducts a quarterly property pricing index in Kenya, said Tuesday that house prices dropped 0.2 percent in quarter two, compared to a growth of 3.6 percent in a similar period last year.

It linked the price fall to an oversupply of homes amid reduced demand related to the Covid-19 economic fallout— which has led to job losses, pay cuts, closure of some firms and cuts on bank loans and mortgages.

Land prices also dropped 0.74 percent on average in the three months to June compared to an increase of 0.6 percent in a similar quarter last year.

The decline may look minimal, but the impact is reflected in the fact that land and home prices have recorded double-digit annual increases in recent years on increased demand for real estate.

The fall has hit property developers and land speculators while offering a bargain to investors with money for real estate.

“The pandemic has caused an economic slowdown, which could potentially further see adverse activity in the sector that has been resilient," said Sakina Hassanali, head of property development consulting and research at HassConsult.

"Land as an asset class has always remained resilient and the real estate sector will continue experiencing market economic shocks into the third quarter as investors have adopted a wait-and-see attitude expecting prices to fall further."

Land prices in Parklands and Spring Valley dropped by the biggest margin of 2.74 per cent and 2.59 per cent respectively.

An acre of land in in Parklands fell to Sh390.8 million and dropped to Sh169.3 million in Spring Valley.

In Nyari Estate it dropped 1.7 per cent to Sh103 million an acre, Loresho 1.76 per cent to Sh89.4 million and Langata 1.55 per cent to Sh63.4 million.

But Muthaiga, Donholm, Gigiri, Runda and Kitisuru defied the trend, helping to cushion the average price from further drops.

Donholm recorded the biggest price jump in Nairobi, with an acre of land rising 2.76 per cent to Sh70.8 million.

Gigiri, where the UN complex sits, saw a 1.21 per cent rise to Sh233.6 million while land prices in Runda and Kitisuru rose 0.23 per cent and 0.56 respectively.

Upper Hill is listed as the costliest location to buy land, with an acre there going for Sh525.7 million followed by Westlands at Sh418.7 million and Kilimani Sh417.6 million.

The land prices boom in satellite towns that has been driven by Kenya’s growing middle class who cannot afford property in the capital also dropped save for Rongai where an acre rose 1.37 per cent to Sh41.9 million.

The high appetite for property saw coffee plantations in Kiambu cleared to pave the way for gated housing estates and shopping centres.

An acre in Kiambu dropped three per cent to Sh41.9 million while Kitengela recorded a 1.6 per cent drop to Sh12.3 million.

Housing has been one of Kenya’s fastest growing sectors over the last decade, fuelled by a growing middle class, with returns from real estate outpacing equities and government securities.

This fuelled a boom in land, whose prices have increased nearly four-fold in Nairobi and surrounding satellite towns like Kiambu, Ongata Rongai and Kitengela.

The feverish rise in house and land prices has led to a bubble, setting the stage for multi-billion shilling loan defaults from property developers who had placed their bets on Kenya’s real estate.

Home prices in high-end estates shrugged off the bearish market to record marginal gains while houses in estates targeted by the middle class like Kilimani, Donholm and suburbs of Juja, Rongai and Kitengela recorded drops.

On average, the cost of homes in Muthaiga rose 3.62 per cent to Sh83.1 million and 1.95 per cent in Runda to Sh93.9 million.

But homes in Donholm Juja, Kilimani and Rongai fell 1.49 per cent, 2.52 per cent, 1.16 per cent and 1.79 per cent respectively.