Values in Kenya´s residential property market continue to rise, amidst robust economic growth and a  sharp increase in the population of middle-class and expats. Residential property values in Kenya have skyrocketed a stunning 357% from 2000 to Q3 2014, according to HassConsult.

During the year to end-Q3 2014, the Hass Composite Property Sales Index, a measure of asking sales prices of residential properties, rose by 4.7%, a sharp improvement from meagre y-o-y increases of 0.05% in Q2 2014, 1.7% in Q1 2014, and 0.3% in Q4 2013, based on a report released by HassConsult Limited. Quarter-on-quarter, residential property prices increased 3.1% in Q3 2014.

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 property in the country surged to KES25.6 million (US$283,000) in September 2014, from KES7.1 million (US$78,482) in December 2000, according to HassConsult. The average price for a 1-3 bedroom residential property is currently KES11.8 million (US$130,435). On the other hand, the average price for a 4-6 bedroom residential property is KES36.5 million (USS403,463).

By property type:

• The average asking price for detached houses increased 3.3% y-o-y to KES36.3 million (US$400,788) in Q3 2014. Prices for detached houses also rose by 3.2% during the latest quarter.
• The average asking price for semi-detached houses surged 8.4% y-o-y to KES20.9 million (US$230,756) in Q3 2014. Semi-detached house prices increased 2.4% q-o-q in Q3 2014.

• The average asking price for apartments stood at KES13.1 million (US$144,637) in Q3 2014, up 6% y-o-y and 3.6% q-o-q.

In Kenya, most property purchases are cash-based transactions. Because of this, the mortgage market remains underdeveloped.

Kenya’s property market is expected to remain strong in coming years.  “Kenya’s property market has potential for higher rates of return compared to other jurisdictions. It is also relatively easy for foreign investors to enter Kenya’s real estate sector,” said Nathan Luesby of Jenga Web Ltd.
The economy is expected to grow by 5.7% this year, almost the same as the previous year, according to the Kenya National Bureau of Statistics. The central bank kept its key interest rate unchanged at 8.5% in November 2014, after cutting it by 25 basis points in May 2013 to buoy economic growth.

Kenya’s property boom

Kenya’s property boom was led by the increase in prices of detached houses, which include stand-alone houses, bungalows, cottages and villas. Prices of detached houses surged about 413% from 2001 to Q3 2014.

Price increases for semi-detached houses and apartments were also strong. For semi-detached houses, which include townhouses and maisonettes, prices also soared by 319% from 20o1 to Q3 2014. For apartments, which include apartments, duplexes and triplexes, prices rose by 251% over the same period.

A shift from detached houses to apartments

As the affordability of detached houses deteriorated over the past 13 years, homebuyers are now shifting to lower priced types of properties.  Apartments now dominate the Kenyan property market, taking up about 41.7% of sales. Detached houses account for 34.3% while semi-detached houses take up 24.0% of the market.  This is a significant change from 2001, when detached houses made up more than half of sales.

Kenya’s middle-income class fuelling property demand

Property developers now focus on high-end properties targeting the “new” middle class which has increased enormously in size in recent years. Moreover, interest rates have been cut to a range of 11% to 14%, creating substantial cash flow for the middle class.

“With attractive interest rates, a limited supply of housing, and a more educated and ambitious population, the real estate market is faced with many opportunities,” said Oliver Manyasi of Lamudi Kenya.

Foreigners are also buying more in Kenya. Foreigners generally prefer the residential area within an arc from Nairobi´s south west to north east. In the Parklands area of Nairobi, demand is high and  property is being snapped up by moneyed Asian investors. Because of security concerns and the recent breakdowns in the provision of the basic utilities, there is increased demand for accommodations within secure compounds with their own water supply and back-up generator.

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

Construction industry booming

Construction is surging, with many shopping malls, office parks and residential developments under construction. In 2013, the total value of new buildings completed in Nairobi, the country’s capital, more than doubled to KES55.1 billion (US$610 million) in 2013 from KES20.6 billion (US$230 million) in 2009.

Cement consumption also surged by 61.5% to 4.2 million tonnes from just 2.6 million tonnes over the same period.

Developments include a mixed-used development on the Thika Superhighway, the Garden City. This area already has two new malls, the TRM and the Mountain Mall. When completed, the 32-acre Garden City will include 50,000 square meters (sq. m.) of retail, 500 homes, and a four-acre central park with an outdoor concert arena.

Moreover, Nextgem Mall is also currently under construction along Mombasa Road near the Southern bypass interchange.

Housing shortage

Despite the construction boom, Kenya still faces a housing shortage of about 100,000 homes a year, based on an article published by Lamudi Kenya. The country’s growing population feeds a huge demand and supply gap.

“A rapid population increase and a rapidly growing economy are still fueling demand for property against limited supply,” said Nathan Luesby of Jenga Web Ltd.

“Demand is still strong in the middle- to high-income segments of the market. There is also a lot of land to be purchased around Ngong, Kitengela, Ongata Rongai, SyoKimau as well as urban areas of Nakuru and Eldoret,” said Samwel Rono of real estate advisory firm Legend Valuers Ltd.

However, there are few places in Kenya where security is not a concern. “The coastal resort town of Mombasa is a no-go zone for many foreign investors due to recent violence involving extremist Muslim youth groups,” Rono added.

Kenya is the most improved real estate market in 2014

Kenya tops the global list of most improved real estate markets in 2014, based on the Global Real Estate Transparency Index released by Jones Lang LaSalle (JLL). Kenya was followed by Qatar, Ghana and Nigeria.

The country showed impressive improvement in transparency mainly due to the increased regulation in the real estate market as Kenya aims to become an economic hub in East Africa, according to JLL.

“One example of this is the Kenyan government’s introduction of a framework for REITs (Real Estate Investment Trusts) in the country, passed in mid-2013,” said JLL. “Property legislation is also undergoing a major overhaul, with the Ministry of Lands setting a goal of digitizing all land records and creating a land rent database,” added JLL.

Moreover, private companies and other international advisors in Kenya also increasingly provide consistent data for the real estate market.

Yet despite a significant improvement in Kenya’s real estate market transparency score, it is still ranked as semi-transparent.

Rents continue to surge

Residential rents in Kenya rose by 8.7% y-o-y in Q3 2014, to an average of KES127,113 (US$1,404) per month. The average rent for a 1-3 bedroom residential properties is currently KES70,812 (US$782) while it was KES200,939 (US$2,220) for 4-6 bedroom properties.

By property type:

• The average rent for detached houses rose by 7.2% during the year to Q3 2014, to KES194,765 (US$2,152) per month.
• The average monthly rent for semi-detached houses soared by 12.2% y-o-y to KES136,110 (US$1,504) in Q3 2014.
• The average monthly rent for apartments also surged by 9.5% y-o-y to KES73,400 (US$811) over the same period.

Kenya joins middle income club

In September 2014, Kenya effectively joined the ranks of middle income countries. This was mainly due to the ‘rebasing’ of the economy, which resulted to 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 Kenya National Bureau of Statistics (KNBS). The statistical reassessment makes it the 9th largest economy in Africa, surpassing Ghana, Tunisia and Ethiopia.  The country’s real GDP growth rate last year 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.

This positive economic development is expected to lower Kenya’s debt ratios, and improve its ability to borrow to finance a much needed construction of new transport links and a repair of existing infrastructure in the country.

Moreover, it is also expected to boost the country’s slumping tourism sector. “The GDP rebasing exercise in Kenya will provide a much needed boost to the Kenyan economy as the government tries to spur economic growth in light of the challenges facing its important tourism industry,” said Ahmed Salim of risk-advisory group Teneo Intelligence.

Agriculture remains the backbone of Kenya’s economy, contributing an average of about 25.4% of GDP every year. But manufacturing, Information and Communication Technology (ICT), and real estate are expanding.