Real Estate Market Trends Kenya 2019 – Risks & Challenges
Real Estate Market Trends Kenya 2019 – Risks & Challenges
The national real estate market is in good health and everything seems to indicate that the year 2019 will be a period of expansion.
However, there are some indicators that invite reflection on what should be the steps that the sector should take to ensure a time of sustainable growth and prevent a real estate bubble like the one suffered a few years ago in Nairobi, Kenya.
In 2018, Nairobi already attracted all eyes. The city attracts every year more and more newcomers, thanks to its dynamism, quality of life, its privileged geographical situation and its unique charm. This is enough to boost prices but also to maximize the chances of making a successful investment.
The real estate market in 2018 was dynamic thanks to low-interest rates. However, the country has seen high mortgage rates of 12% to 15% on average and demand for affordable housing.
The rising real estate prices have impacted the purchasing power of Kenya. The year 2019 will be marked by several regulatory changes and in particular the implementation of the current construction codes into Eurocodes by January 2021.
KENYAN REAL ESTATE MARKET: WHAT TO REMEMBER FROM 2018?
A rise in generalized property prices in Kenya.
Real estate continued its rise in 2018 but it was more contrasted. In fact, prices rose by + 3.8% on average, with spectacular increases in some cities such as Loresho (8.9%), Kitisuru (4.6%), Gigiri (4.6%), Spring Valley (2.6%), Langata (7.6%), Nyari (6.5%), Karen (2.1%).
Conversely, other cities have seen very sharp declines. This is the case of Langata (7.6%) and Westlands (-1.1%), according to the research. However, we note that, since 2015, the upward trend of real estate prices was intensifying.
There was a lot of tension in the country and investors did not want to engage in huge and very expensive projects.
Companies have adopted a wait-and-see attitude in the hope that things will improve. And then the handshake occurred and brought some kind of stability.
Different sectors of the economy began to race, which also led to a change in real estate. Most investors have returned to Kenya and businesses have begun to grow.
What should investors, home buyers and sellers expected to see in Kenyan real estate trends in 2019?
For the past two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s GDP which grew from 10.5% in 2000 to 12.6% in 2012 and 13.8% in 2016. However Market and political risk remain key factors affecting the real estate market in Kenya.
For 2019 the property market outlook will be dominated by
- the economic developments,
- the effect of property demolitions
- the fragile legal environment over ownership rights,
The risk trade off in investments comes always with a premium. Lets see what we need to watch out for in 2019.
Rapid Growth In Office Sector
The Kenyan office sector has grown rapidly over the past decade, in tandem with the improving economy, as firms expanded in their operations while multinational firms continually set up their base in the country
A smart office is also a new trend that has changed the office space area. With amenities like an equipped gym, Cafeterias and entryways for people living with disabilities.
Also See – The ADDRESS [Office Space For Sale in Lavington / Commercial Property for sale in Westlands ]
Low interest rates perfect for buying your home
Mortgage rates have never been so low. According to the latest figures from the Bank of Kenya, the rate of a fixed rate mortgage in 15 years reached 1.50% last year, against 1.60% in 2017.
Several players whose brokers ?? estimate that the real estate market, because of the favorable economic situation, is not yet ready for an increase in rates.
However, with banks at the breakeven point and with the next rise in central bank interest rates, it is clear that mortgage rates will eventually rise again.
Kenya has, therefore, every interest in 2019 to take advantage of static low rates to materialize their real estate projects.
You’ve probably heard about the projects the President intends to take before they leave the office in 2022: the agenda for the big fourths. It is about general health care, food safety and nutrition, which improves manufacturing and affordable housing.
The government must raise money to finance these projects. Ordinary Kenyans will face difficult times in the future because the government is taking various tax measures.
Investing in real estate requires large investments. Lack of available income makes investment difficult. Will the government reconsider its fiscal policy in 2019? We have to wait and see.
Low housing production or parity in the sale of new construction and used housing
In the middle of this year, the transactions of used housing multiplied by 11 to those of new housing.
It is worth bearing in mind that the levels of production of new housing are still far below what the Ministry of Public Works considers adequate for the needs of the population.
However, just as the real and new used housing balance maintains a parity of 50/50, which clearly seems contradictory with the previous information.
This is due to the fact that, during the years of the economic crisis, a large number of banking entities acquired housing in payment dates. Currently, these homes are selling as used, despite being technically new.
Professionalization of the real estate sector
Another of the most important aspects that will continue to consolidate throughout 2019 is the professionalization of the sector, both in terms of training or staff training, and the best use of technology by real estate.
Until recently, the sector was characterized by a fragmentation of real estate agents, who has the training to advise and participate in the promotion of apartments in the right way, was quite questionable.
However, during these last years, there has been a concentration of the market in a selection of specialized companies and professional groups that have the necessary resources to provide a quality service.
Moreover, the use of new digital technologies is increasingly frequent, with the presence of Big Data and Analytical tools, put at the service of real estate agents.
Also Read – How To Find Best Real Estate Agent in Kenya?
Kenyans prefer houses built of stone and mortar. They are not more open to modern construction methods, which are usually faster. This means that the cost of the material will continue to rise due to the high demand for the material.
With a massive affordable housing project in 2019, the government hopes to introduce new construction methods to build many houses in a short time.
What Are The Risks Involved In Real Estate Investing?
Risk is a critical factor in real estate. It is a complex topic and comes in many forms, making it difficult to identify much less quantify and manage.
Risk is inherent in real estate due to its temporal nature: uncertainty is inherent in anything marked with the passage of time. In private equity real estate, the fact that we buy physical assets gives many investors a level of comfort.
That several times is misleading investors to make wrong irrational decisions based on wrong assumptions regarding the safety feeling against a specific project.
There are many risks involved in real estate investing that have to be considered in conjunction with the expected value of the investment.
Some people claim that real estate market is safer than other markets or asset classes. It is not about how safe a project or an investment is, but the level of risk involved. There are several types of risk.
Specific risk: As its name implies, relates to risks that are very specific to a property or project.
Systemic risk: Is generally used in reference to an event that can trigger a collapse in a certain industry or economy.
Liquidity Risk is one of the main, key risks of the real estate market. Taking into consideration the depth of the market and how one will exit the investment needs to be considered before buying.
Replacement cost risk: As demand for space in the market drives lease rates and prices higher in older properties, it’s only a matter of time before those lease rates and sales prices justify new construction and increase supply risk.
Systematic or Market risk: This is the risk inherent to the entire market or market segment.
Leverage Risk. The more debt on an investment, the more risky it is and the more investors should demand in return.
Real Estate Market Challanges
These are the points where housing developers will set their efforts.
Listen to the buyers. Choose municipalities with infrastructure and services; but above all, “do not repeat what does not work”; that is, build housing outside the containment parameters.
Construction of intraurban housing. Rely upon the idea of densifying the cities with the greatest potential such as Langata, Nyari, Kitisuru and Gigiri.
Redefinition of the density and merged properties . The feasibility of building 500 homes per hectare, equivalent to more than seven times what traditional housing has in urban peripheries.
Housing for rent. More rental developments are required, in response to increasing labor mobility, not only within large cities but throughout the country.
Habitability. The ideal size of interior spaces will depend on the location of the home. An inhabitant of the metropolis could require fewer square meters than the one that inhabits medium cities. In interior distribution, the proposal to offer more loft-type apartments stands out, with which each user personalizes their home. Millennial may require a larger kitchen.
The important thing is not to give more built meters, but to give more value to the patrimony of families and good design.
Sustainable projects. A good project takes into account social, economic and sustainable aspects. This is friendly to the environment; better management of territory and waters in urban areas. Inclusion of eco-technologies, which allows buyers to access green mortgages.
In principle, the main indicators of the national real estate sector predict a healthy 2019. However, we should not rule out surprises as a result of the interference of external factors: a hypothetical rise in interest rates by the banks. And also internal factors: such as the new Mortgage Law, which will also regulate the work of Real Estate Agents.
For all these reasons, it is advisable to be alert and maintain an attitude of restraint. Wait and see the changes taking place in Kenya’s real estate industry in 2019, for more info talk to our experts.
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