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Market in Depth Last Updated: February 15, 2018

Kenya’s house prices are now falling rapidly, amidst political uncertainty

After seven years of strong house price rises, Kenya’s residential property market is now slowing sharply, as political uncertainty persists after petitions have been filed before the Supreme Court to overturn Uhuru Kenyatta’s victory in the October repeat election.

During the year to Q3 2017, the Hass Composite Property Sales Index, a measure of asking sales prices of residential properties, fell by 5.1%, in sharp contrast with a y-o-y rise of 10.4% during the same period last year, based on a report released by HassConsult Limited. It was the second consecutive quarter of y-o-y price declines after falling by 2.2% in Q2 2017.

Quarter-on-quarter, residential property prices dropped 1.8% in Q3 2017.

“Buyers are sensitive to risks associated with the political process and are therefore unlikely to make decisions until there is an end to this period,” said Sakina Hassanali, Head of Development Consulting and Research at HassConsult.

The Hass index is based on 4,000 to 6,000 properties tracked across Kenya, which are collected from multiple estate agencies and all publicly available house sales, including in property magazines, property websites and the national media.

The average value of a residential property in the country surged to KES29.8 million (US$287,367) in September 2017, from just KES7.1 million (US$68,467) in December 2000 – equivalent to about 4.2 times increase, according to HassConsult. The average price for a 1-3 bedroom residential property is currently KES13.6 million (US$131,148). On the other hand, the average price for a 4-6 bedroom residential property is KES43.1 million (US$415,622).

Several Nairobi suburbs registered nominal house price rises. Muthaiga, Nairobi's long-established Beverly Hills, registered a rise in house prices of 12.5% during the year to Q3 2017, followed by Loresho (8.9%), Langata (7.6%), Nyari (6.5%), Kitisuru (4.6%), Gigiri (4.6%), Spring Valley (2.6%), Karen (2.1%), Eastleigh (1.5%), Ridgeways (1.4%), and Runda (1%). However when the 7.06% inflation rate in end-Q3 2017 is taken into consideration, real house prices in most Nairobi suburbs have actually declined year-on-year during the period.

Among the capital city’s suburbs, Kilimani, one of Nairobi’s affluent neighborhood, registered the biggest decline in nominal house prices of 9.2% during the year to Q3 2017, followed by Upperhill (-9%) and Kileleshwa (-8.3%). Minimal house price declines were also seen in Lavington (-1.9%), Parklands (-1.6%), Donholm (-1.2%) and Westlands (-1.1%). The decline is obviously bigger when adjusted for inflation.

In Kenya, most property purchases are for cash. Because of this, the mortgage market remains underdeveloped. In 2016, the size of the mortgage market was equivalent to just over 3% of GDP and there were fewer than 25,000 mortgage loans outstanding – highlighting the inaccessibility of housing finance.

Political uncertainty is now adversely impacting the housing market. Uhuru Kenyatta, the son of Kenya’s founding president Jomo Kenyatta, took up his father’s mantle to become head of state in April 2013. He was re-elected for a second term in the August 2017 general election, but after opposition protests the Supreme Court declared the election null and void because of irregularities. Kenyatta was also declared winner of the October re-run, which was boycotted by the opposition. Currently, petitions to overturn Kenyatta’s victory in the October repeat election are pending before the Supreme Court.

Yet Kenya’s economy remains robust. In 2016, the economy expanded strongly by 5.8%, slightly up from a 5.7% growth in 2015, according to the International Monetary Fund (IMF), making it one of the fastest-growing economies in Sub-Saharan Africa.

Kenya residential property priceIn Q2 2017, the economy grew by 5%, after growth of 4.7% the previous quarter and 6.3% during the same period last year, according to Kenya National Bureau of Statistics (KNBS). The economy is projected to expand by a healthy 5% this year and by another 5.5% in 2018.

Foreigners can freely buy ‘commercial class’ land in Kenya. This type of land is for income or revenue-making purposes.


Analysis of Kenya Residential Property Market »

Rental Yields

Yields are moderate to good in Nairobi, Kenya: expect around 6.5% from an apartment.

Nobody would say that Nairobi is inexpensive.  A nice big house can cost $1.1 million in what is still a poor country.  But the rental returns are rather good.

  • A 3 bedroom apartment in an elite district of Nairobi can be bought for around US$200,000.
  • A 3 bedroom house may go for US$500,000, and a 5-bedroom house may go for US$1.1 million.
  • Townhouses are somewhere between these two prices.

How much will you earn? Gross rental yields on Nairobi apartments are moderately good, at around 6.0% to 7%.   Townhouses yield around 5.0% to 6.0%.  Yields on detached houses are lower, at 4% to 5.5%.

Conclusion: Nairobi property is attractive, with significant capital gains potential.  The best combination of rental yield and capital gains seems likely to be offered by townhouses.

Round trip transaction costs are very low in Kenya. See our Property transaction costs analysis for Kenya and Property transaction costs in Kenya, compared to the continent.

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Taxes and Costs

Kenya's rental income tax is high

Rental Income: Kenyan gross rental income earned by a nonresident individual is subject to tax, withheld at source at 10%.

Capital Gains: No tax is levied on capital gains realized from the sale of real property.

Inheritance: There are no inheritance or gift taxes.

Residents: Residents are taxable on worldwide income at progressive rates, from 10% to 30%.

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Buying Guide

Total transaction costs are low in Kenya

In the absence of corruption (which is virtually impossible in Kenya) the total round-trip transactions cost would be around 4.76% to 6.76%, inclusive of the 1.25% real estate agent’s commission.

The whole process for the titling of the property can typically be completed in around 72 days.

Real estate transactions are normally quoted and concluded in Kenyan Shillings (KES).

Read Buying Guide »

Landlord and Tenant

Landlord's rights are strong in Kenya

Kenya housesKenyan rental market practice is pro-landlord.

Rent: There is no rent control at the upper end of the market. Prior to occupancy, the tenant normally pays a quarter’s rent in advance and an additional one month’s rent as security deposit.

Tenant Evictions: Landlords carry out evictions themselves, even if the law mandates that only the courts can order an eviction. Landlords can also seize the tenant’s possessions for compensation of unpaid rents.

Read Landlord and Tenant »

ECONOMIC GROWTH

Economy growing strongly, but high unemployment and poverty persist

Kenya GDP inflationKenya is sometimes known as the “cradle of humanity.” Many believe the bones of our oldest ancestors lie in the Great Rift Valley. Great safari destinations, with abundant wildlife and beautiful scenery, tourism and horticulture have become major foreign exchange earners, rivaling the tea industry (Kenya is the world’s third largest tea exporter).

After a prolonged economic stagnation because of corruption and strict regulations, the country is now showing robust economic growth. The economy grew by an average of 6.3% from 2010 to 2013.

Kenya’s economy expanded strongly by 5.8% in 2016, slightly up from a 5.7% growth in 2015, according to the International Monetary Fund (IMF), making it one of the fastest-growing economies in Sub-Saharan Africa. In Q2 2017, the economy grew by 5%, up from growth 4.7% the previous quarter and 6.3% in the same period last year, according to Kenya National Bureau of Statistics (KNBS).

Kenya’s economy is projected to expand by a healthy 5% this year and by another 5.5% in 2018, based on IMF estimates.

In September 2014, Kenya suddenly joined the ranks of middle-income countries due to the ‘rebasing’ of its economic statistics, which resulted in a 25.3% upward revision of Kenya’s GDP in 2013, from a previous estimate of US$42.6 billion, to about US$55.2 billion, according to the Kenya National Bureau of Statistics (KNBS). The reassessment makes it the 9th largest economy in Africa, surpassing Ghana, Tunisia and Ethiopia. The country’s real GDP growth rate in 2014 was also revised upwards to a robust 5.7%, from an earlier estimate of 4.7%. In addition, Kenya’s GDP per capita was also increased to US$1,246, from just US$994 in 2013. In 2016, GDP per capita stood at US$1,552.

The dark side of the economic picture
Kenya's GDP may be growing rapidly, but so too is its population. The country has an average population growth rate of about 2.8% annually in the past five years. As a result its GDP per capita growth figures are quite poor. From 2012 to 2017, Kenya’s real GDP per capita grew by just 2.5%, on average, per year. In other words, for most people real economic progress has been very much less than the bare GDP figures would suggest.

Currently, Kenya’s GDP per capita was estimated at US$1,677 in 2017, according to the IMF.

Why has economic growth lagged?  According to a World Bank report Kenya's development has been held back by stagnating agriculture and manufacturing industries, falling exports, and a low household savings rate that can be tapped for investment. And of course there is rampant government corruption.

That's why Kenya’s poverty index remains high. The country has still the highest number of slums in Africa. In fact, almost 20 million Kenyans, about 42% of the population, live on less than 1 dollar per day. Around 80% of all jobs are in the low-paying, less productive informal sector. 

Kenya also has the highest rate of unemployment in East Africa, according to the United Nations’ 2017 Human Development Index (HDI) report. Kenya’s youth unemployment now stands at 17.6%, almost three times higher than neighboring Uganda and Tanzania, according to the World Bank.   The country has one of the world’s highest dependency ratios at 75.4%, mainly due to the large number of youths (children under 15 years) in every Kenyan family.

Overall inflation slowed to 5.72% in October 2017, from 7.06% in the previous month and 6.47% in the same period last year, according to the KNBS.