The Standard Blog

Price correction in property market

Published on 01/07/2009

Peter Okong’o

Kenya’s property market is highly stratified, a factor that has helped protect it from the swing and burst cycles that characterize the industry elsewhere in the region.

But that comfort zone may soon be wiped away, if our reading of the tea leaves is correct.

Our lead story today reports that the housing section of the property market is experiencing a shift, after investment by the Diaspora — mostly Kenyans living in America and the UK — dropped significantly, in the wake of the global financial crisis.

This group of investors was largely responsible for the huge appreciation in the price of housing and land, between 2002 and 2007.

That began to change after last year’s post-election violence and the global credit crisis rocked their confidence and emptied their pockets in rapid succession.

Most remittances are now channeled to food, paying school fees and meeting other daily expenses of their dependants. Statistics from the Central Bank of Kenya indicate that remittances from the Diaspora fell in January to its lowest figure since December 2006.

While remittances have since increased, they are still prone to wild swings. Meanwhile, the effect of will prevail for a while.

The middle class, the main driver of the housing boom, are also shying away from taking up mortgages.

Most affected are build-to-rent houses in Nairobi and Mombasa. In Nairobi’s Langata, several high rise apartments have remained without tenants nearly six months after they were completed, something that would have been unthinkable just a year ago.

Another factor that has fuelled the often ridiculous spiraling of residential property prices is the involvement of speculators. This group took advantage of Kenyan’s never dying thirst to own both land and homes, to drive prices upwards and make huge profits.

But the phenomenal growth of high-priced multi-storey apartments for rent, even in hitherto exclusive suburbs of Nairobi, also reflects the fact that the city is running out of land for housing, hence the move by many to buy land in areas like Athi River.

Eventually, these will become part of the greater Nairobi Metropolitan area, as the city moves further outward.

That will inevitably push up land rates and the cost of property.

But even houses initially built for sale, are now being offered for rentals, after the owners found no ready buyers. Faced with huge monthly mortgage repayments, they opted to get tenants while biding time in the hope of another boom.

Kenya’s harsh economic climate and high inflation, combined with political uncertainty, job losses and tightening of credit have all combined to force a price correction on housing prices.


COMMENTS

1. On Wednesday July 15, 2009, 8:27 AM , Elijah Monda, United Kingdom wrote:

  Thanks for the correction of the market in house property. What about KRA Tax, will it correct itself? one used car imported to kenya attracts a tax of 76.75 percent based on KRA valuation. Please help if you can. I feel that Kenya operates a closed economy.

 


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