In the midst of economic uncertainties, Nairobi’s property market is showing remarkable resilience. The latest report from HassConsult reveals that property transactions in the city have managed to maintain a steady pace, despite the challenging economic conditions and rising costs for developers. This ongoing stability is an encouraging sign for the market, as it continues to adapt to the pressures of a shifting economy.

An Overview of the Market Trends

According to the Hass Property and Land Price Index for the second quarter of 2024, property prices in Nairobi saw a modest increase of one percent. While this is slower than the 2.7 percent rise recorded in the previous quarter, it marks the eighth consecutive period of price increases, highlighting the market’s ongoing stability. This steady growth, though reduced in pace, reflects a broader trend of resilience in Nairobi’s property sector.

Ms. Sakina Hassanali, Head of Development, Consulting, and Research at HassConsult, pointed out that high interest rates and a stronger shilling have affected the advantages for foreign buyers. However, property prices have continued to rise, albeit more slowly. “The low mortgage participation rate in Kenya means that higher interest rates on mortgages don’t significantly impact market-wide property price movements. However, they do reduce market liquidity, which can dampen overall demand,” she explained.

Stability in a Challenging Environment

Despite the economic pressures, Nairobi’s property market has shown resilience. Hassanali noted that property prices across most areas in the city have remained stable. This is particularly evident when comparing the performance of Nairobi’s satellite towns to its suburbs. Satellite towns have outperformed the suburbs, with an average increase of 2.1 percent in property prices, while suburbs experienced a slight decrease of 0.9 percent.

This divergence can be attributed to the accelerated urbanization in satellite towns, which has driven up demand and pushed prices higher. As more people move to these rapidly growing areas, property values continue to climb, making satellite towns an attractive option for investors and homebuyers alike.

Rental Market Dynamics

The rental market has also seen some changes, with a slight increase in rental prices of 0.01 percent during the quarter. However, property owners are exercising caution when it comes to raising rents. High taxes and inflation have constrained disposable income, prompting owners to be careful about increasing rents to retain tenants.

Rental yields vary significantly between Nairobi’s suburbs and satellite towns. In the suburbs, the average yield increased to seven percent by the end of June from 6.9 percent in March. On the other hand, rental yields in satellite towns decreased slightly from 4.9 percent in March to 4.8 percent in June. These variations reflect the differing market conditions in these areas and the challenges property owners face in adjusting to economic shifts.

Land Prices on the Rise

Land prices in Nairobi have also shown notable growth. In the city’s 18 suburbs, the average price per acre increased by 1.3 percent in the first quarter of 2024. In contrast, land prices in satellite towns rose by an average of 3.03 percent. Over the past year, land prices in the suburbs have grown by five percent, while satellite towns have seen an impressive increase of 11.2 percent.

Among the suburbs, Lavington and Spring Valley led in price growth, with increases of 4 percent and 3.8 percent, respectively. Kileleshwa was the only suburb to experience a slight price decline of -0.1 percent. The average price per acre in the suburbs now stands at KES 203.7 million, surpassing the KES 200 million mark for the first time in late 2023.

“The growth in prices across 17 of 18 suburbs, despite the slower pace compared to the last quarter of 2023, indicates that the upper end of the market is still seeing strong demand,” said Hassanali. This sustained interest in higher-end properties reflects the ongoing confidence in Nairobi’s real estate market.

Satellite Towns Leading the Charge

Satellite towns have been particularly dynamic, with Kiserian, Limuru, and Ongata Rongai leading quarterly price gains at 9.4 percent, 8.4 percent, and 7.8 percent, respectively. “Satellite towns are becoming increasingly attractive as an asset class, with an average annual growth of over 10 percent. With interest rates expected to fall, the stable price growth over the past two years should make land even more appealing as an investment,” Hassanali noted.

These towns are now approaching returns that rival government Treasury Bills. Ongata Rongai, in particular, has seen an annual price gain of 16 percent, making it a standout performer in the market.

Developer Strategies and Market Adaptation

Developers are adapting their strategies to navigate the current economic challenges. Many are focusing on areas where land prices are lower than the satellite town average of KES 28.8 million. This approach helps them manage overall costs and offer competitive pricing to attract buyers. Despite rising input costs, these areas remain attractive due to their potential for future growth and development.

Challenges and Considerations

Despite the positive trends, the property market faces several challenges. High interest rates and inflation continue to impact disposable incomes, making it harder for some buyers to afford homes. Additionally, property owners must carefully balance rent increases with the need to retain tenants in a tight economic environment.

The Role of Foreign Investment

Foreign investment remains a crucial component of Nairobi’s property market. Although the stronger shilling has reduced some advantages for international buyers, the market continues to attract investors looking for stable returns. Ongoing infrastructure development and urbanization trends offer promising opportunities for both local and international investors.

Government Policies and Their Impact

Government policies have played a significant role in shaping the property market. Initiatives aimed at improving infrastructure, such as road expansions and new urban centers, have boosted property values in satellite towns. Additionally, policies promoting affordable housing have encouraged developers to invest in lower-priced areas, further driving demand and price growth.

Looking Ahead

The future of Nairobi’s property market appears promising. With continued urbanization and infrastructure development driving demand, the market is expected to sustain its momentum. Developers and investors should remain attuned to market dynamics and economic indicators to capitalize on emerging opportunities.

As interest rates are projected to fall in the coming months, the stable price growth witnessed over the past two years should continue, making land even more attractive as an asset. By focusing on strategic investments and innovative development approaches, Nairobi can maintain its property market’s vibrancy and appeal, ensuring it remains a key player in Kenya’s economic growth and development.

Conclusion

Nairobi’s property market stands as a testament to resilience and adaptability in the face of economic pressures. The steady increase in property prices, driven by demand in satellite towns and supported by strategic government policies, underscores the market’s potential for growth. As the city evolves, the property market will continue to reflect broader trends shaping Kenya’s development, making it a crucial barometer of economic health and stability.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

31st July, 2024