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Expensive land, strict rules slow down Karen luxury property growth


A section of Runda estate in Nairobi. FILE PHOTO | NMG.

The high cost of land and strict residents’ association rules in Karen are slowing down the development of commercial luxury property, forcing investors to turn to other districts within Nairobi, a realtor has said.

Knight Frank managing director Ben Woodhams said that an acre of land in Karen costs Sh50 million, more than double the price quoted five years ago, which is the biggest deterrent to developers once the building restrictions are factored in.

Strict development regulations by the residents’ association where, for instance a developer is expected to build a single unit on half an acre of land, have also discouraged investors eyeing the prime residential area.

“We have seen a slowdown in Karen... if a developer buys an acre he can only put up two units. It means that he has already spent Sh25 million on each house even before he can start building,” said Mr Woodhams on the sidelines of the release of the firm’s Wealth Report 2017 in Nairobi.

“If we factor in the cost of land and building it means that the property may have to be sold for over Sh120 million for one to make money. The prime residential market is already saturated and these prices do not make sense to buyers and developers alike,” he said.

It is expected that property development in Karen will continue slowing down until the residents’ association approves an increase in the number of units that can be built on an acre.

Luxury homes in Nairobi are priced from Sh80 million, while rent starts at Sh250,000 for apartments and Sh300,000 for townhouses and stand-alone units. The prices slowed down in the last year.

The luxury housing segment is expected to see most growth in areas such as New Runda and Kitisuru, where availability of land is attracting investors as opposed to the situation in areas such as Karen and Muthaiga.

Dollar millionaires

Amenities such as schools and recreation facilities in outlying areas of Nairobi have been improving steadily over the years, driven by rising incomes. There has also been an improvement in transport infrastructure.

The recently released Attitudes Survey by Knight Frank ranked Nairobi’s expanding Runda suburb among global real estate hotspots most likely to attract dollar millionaires keen to buy property.

READ: Kenya named as hotspot for wealthy hunters of luxury homes

The area is expected to outperform similar developments in other African cities due to improved transport infrastructure and gated compounds, which are well served by facilities including top schools, recreation and sports facilities.

“As far as growth is concerned we may not see much in areas such as Karen, which is why developers are looking at new Runda, Kitisuru and Limuru Road to build prime-residential houses,” said Mr Woodhams.

The up-coming elections, he said, have slowed down the development of new units.

This is expected to reverse the current marginal price decline in this segment of the market.

The Prime International Residential Index by Knight Frank indicates the value of luxury residential houses in Nairobi decreased by 2.1 per cent last year but was higher than the 1.4 per cent global growth average.

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