Market News

Is writing on the wall for high-end houses?

Vehicles drive through Cotton Avenue in Kileleshwa, Nairobi. A move by the government to turn to cheaper technology and PPPs could spell doom for high end property developers. FILE PHOTO | NMG
Vehicles drive through Cotton Avenue in Kileleshwa, Nairobi. A move by the government to turn to cheaper technology and PPPs could spell doom for high end property developers. FILE PHOTO | NMG 

An advert last week announced that 119 masionettes in Kiambu County retailing at Sh10 million apiece will go under the hammer on February 15, at Agip House in Nairobi.

Also on sale is a newly constructed club house equipped with a swimming pool on a 5.23-acre gated community plot.

And during the same week, different property dealers placed on the market apartment blocks worth Sh657 million as going concerns raising fears of an emerging sinkhole for real estate developments targeting middle and high income earners.

Signs that all was not well appeared last year when the real estate sector experienced a financial squeeze largely blamed on Kenyans’ wait-and-see attitude pending outcome of the 2017 elections.

According to real estate firm Hass Consult Limited, the situation suffered irreparably from interest rate capping with fewer banks willing to dish out loans, high inflation and tightened liquidity that affected the low and top end market segments.

“Reduced spending meant even those who would otherwise consider a high-end market house compromised and settled for community living in a semi-detached housing neighbourhood available on both sale and let,” said the firm’s head of development consulting and research Sakina Hassanali.

While Kenyans preferred detached houses that reported 52 per cent in sales, semi-detached settling for 24.5 per cent and apartments (23.5 per cent) as captured by Hass Property Index in 2001, the situation has changed as last December, apartments took up 48.7 per cent, semi-detached houses (24.9 per cent) and detached houses (26.4 per cent).

“The slowdown in price growth indicates the value of land is no longer immune to political risk, having previously been seen as a safe haven investment whenever there was political or economic uncertainty,” said the Hass Consult executive.

Real estate data vendor Data Fintech adds that sale of three bedroomed houses, town houses and apartments suffered the most with November 2017 and December 2017 recording 72.65 per cent drop for townhouses, houses (68.11 per cent) and apartments experiencing a 69.41 drop.

Interestingly, last year also saw numerous new properties in residential housing segment hit the market further dampening demand with a higher supply boosting ability to leasing tenants to bargain for lower rents.

This adversely hurt developers keen on charging premium prices to recoup higher returns on their investments enabling them to service loans as well as embark on fresh projects.

While the private sector-led housing boom has largely focused on middle and high-end buyers, this has left the lower segment unserved.

But this could change drastically in a few years’ time, after the government announced plans to partner with mass housing units developers to put up a million low cost units countywide on government-owned land for sale to low income earners.

“We are starting off with the 8,000 Mavoko housing units that will retail at Sh1 million to Sh1.5 million. This will give us prototypes that could be replicated elsewhere by various local and international firms,” said Transport, Urban Development and Infrastructure Cabinet Secretary James Macharia.

The new mass housing campaign has also attracted universities with Moi, South Eastern and Embu Universities planning to put up 20,000 hostels on their land on a private-public partnership basis. This could further hurt apartment developers around key campuses who charge students exorbitant rents for accommodation.

National Co-operative Housing Union Chairman Francis Kamande has welcomed the new government initiative of building housing for sale to civil servants via long-term mortgage schemes adding there was a need for authorities to partner with private players to achieve the goal.

Real estate firm Homes Universal chairman Daniel Ojijo welcomed the government’s investment in building housing units but insisted local real estate players should be involved in the projects to ensure sustainability as well as enhance capacity of local players in implementing large scale projects.

On its part, not-for-profit housing organisation, Habitat for Humanity Kenya said the government could help ease proliferation of slums by providing decent homes for Kenyans.

Other State-sponsored projects underway include the 6,000 housing units development by National Housing Corporation in various parts of the country as well as an emerging alternative house-building technology boom that is being promoted by the government.

While the government is hoping to disrupt the housing sector with low cost housing, it portends a nightmare for real estate developers currently scouting for buyers.