Nairobi Real Estate bubble bursts
It happened sometime towards the end of 2009.The bubble was concentrated in the upper to high end property market.i.e. houses above Ksh 10 million.Unlike, other markets Kenyans have never experienced a large scale property price decline or slump.
Signs of the high end property slowdown are:
-Property sellers not providing indicative prices
Take a look at the property supplements in the thursday newspapers in early 2009 and 2008.Sellers provided indicative prices for every property offered.Currently, property listings beyond Ksh 10 million have Price on Application(POA) instead of an actual price.POA indicates that the sellers are unaware of the ruling prices for the relevant property prices.Hence, they wont quote an indicative price for fear of over bidding the market and failing to sale or underbid the market and sell for less than the market rates.
-Compression of rental yields
Looking at the indicative rents around Kilimani,certain areas in Lavington such as Valley Arcade you can see that indicative rents have stagnated around the Ksh 60,000-65,000 range or lower for the desperate landlords.Areas, such as South B/C,Langata and West are seeing a stagnation of rents i.e. rents rising at less than 10% per annum.
-Rise in furnished apartments
To counter falling/stagnant rents savvy landlords are offering furnished apartments and houses.Ideally a furnished apartment rents at least 30%-50% higher than a similarly unfurnished unit.To furnish an apartment that you can go for Ksh 70,000-Ksh 90,000 a month wont cost you more than Ksh 200,000.The extra Ksh 20,000-Ksh 30,000 from furnishing can be recouped in less than 12 months.Furnished apartments have also seen a decline in rents a furnished 3br unit in Upper Hill used to be Ksh 120,000 now its around Ksh 90,000.
The factors that led to the real estate slump were:
-Oversupply to a narrow market segment
Most developers were focusing on the Ksh 10 million and above units because thats where the high margins were.In the end they oversupplied it.The slump has led developers back to the Ksh 5million-Ksh 8million segment.VillaCare and all those high rollers have projects for that price range on going.
Property buyers in the late nineties and early 00s were thrilled by the property location they didnt care about the finish or quality of the property.i.e. people were happy to buy property in Kilelelshwa it didnt matter if the finish was poor.Thats how the area around Kileleshwa Police station and Kenton College ended up looking like Umoja with a lot of flats/apartments.
Over the past three years people buying/renting high end apartments have developed minimum requirements.i.e. if someone is going to buy a Ksh 10 million apartment or rent it he requires: at least two allocated parking spaces,back up water supply e.g. borehole or large reserve tanks, large living space, good security lay out and recently a servants quarter is a must.If your apartment doesnt have these facilities, renting/selling it at the higher end of the market ruling price is tough.
Real estate buyers in Nairobi started questioning the wisdom of buying an apartment at Ksh 9,10 or 15 million when that amount could buy an acre or more of land around the city.The odds of land values rising are higher than a Ksh 10 million apartment doubling in price to Ksh 20 million or even rising to Ksh 15 million.
The risk aversion among local banks led to a slow down of lending for mortgages and development towards the high end units.Leading to fewer clientele for the finished property.By the way i see banks fronting for several property sales through newspaper ads.does that indicate their exposure to the sector?
-Normal supply of units for sale
Regardless of existing market conditions(whether boom or slump) property is always on sale.People who need to sell property are ready to take lower prices because they need the cash.On the other hand existing property owners who have a large capital gain will sell to cash their gains.e.g. if you bought the first Apartments in Lavington/Kileleshwa in the late nineties you got in at between Ksh 4million-Ksh 6 million.Even if the current market is tough, Ksh 8 million to Ksh 10 million can be raised.
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