July 18,2018..A good year for real estate investors. Yes, you heard it right! Kenya is the top investment choice for both local as well as foreigner investors with the most attractive investment destinations of the times.
Mr. Kfir Rusin, EAPI (East Africa Property Investment ) Summit Managing Director Says “Kenya has become a lightning rod for investment as both local and foreign investors have looked to diversify their investments across multiple market segments from retail, industrial, housing and office space.” – as reported in Business Today Kenya.
After experiencing a slowdown in 2017, there is optimism that the market will pick up in 2018, however. Nairobi is a key regional centre that offers good prospects for real estate investors. It is a real estate hub comprising of top notch brokers, agents & real estate developers in Kenya
Are you a keen Kenyan real estate investor looking for opportunities to invest in real estate in Kenya? In this article, we will reveal all the Real Estate Investment Opportunities you need to Venture Into Real Estate Business In Kenya.
Real Estate & Property Investment Options in Kenya
There are three major investment options in Kenya Real Estate Market 2018 are:
🎯 Buying And Selling Land For Profit In Kenya.
Buying land or Investing In Land In Kenya is not always the right investment in Kenya. If you buy a piece of land with the thought of selling it after a few years, there is no guarantee that its price will only rise with the growing years. Typically the land economics says something different.
As per thumb rule of land economics, “If you buy a piece of land and its appreciation rate is slower than the rate of inflation, then you are actually making a loss on that investment, even if you sell the land for a profit”.
Due to inadequate understanding of property market, people end up losing money by purchasing land. This is a huge investment business so a person must be aware of the stats that a location’s property market will soon decline and, therefore, avoid buying land there when the only aim of buying land is to earn profit by selling it after a few years.
🎯 Buy Land and Build property for Rent or Sale.
Building property is another property investment avenue in Kenya. Building any property like school, college, hospital or even apartments may seem a profitable investment but it requires a lot of expertise and huge capital investment. In fact, if one has the finances, one can buy land and build residential units which in future will offer higher returns when resale or to let.. This strategy is capital intensive.
🎯 Investment in R.E.I.T:
Among the three options, investing in joint venture or R.E.I.T is the best. The investor doesn’t have to physically deal with architects, quantity surveyors, structural engineers etc as in the case of buying land then developing.
Another advantage with the joint venture option is that the pooling of resources from like minded investors can help to reduce the capital required from borrowing from banks significantly, hence an easier and cost effective source of development financing.
The investor also benefits from shared risk where property and conveyancing lawyers , land surveyors and land valuers have advised on the conveyancing process , ensuring the land is clean and without any encumbrance, ready for development.
🏘️Low Income Housing Development –
A significant decline in supply of low to middle income housing is spotted in the Government’s plan. As per statistics, development of a million units of public rental housing is required over the next five years. This sector is undersupplied because margins remain extremely thin. If the government creates the relevant incentives to widen this margin, Low income housing could be a boom market for 2018.
🏘️Existing Commercial Properties –
A major upswing in office enquiries is therefore expected in 2018. Now that 2018 is expected to be a rebound for real estate investments therefore, businesses looking to move office are firmly adopting the “wait and see” election approach. Presently the existing commercial properties backed with impatient capital is proven to be reasonable. A right property purchase should be able to provide 12%+ yields over a 5+ year horizon.
🏘️Student Housing –
We have seen a hold back in the business potential of student accomodation in Kenya though it may yield high returns.Student housing in Kenya is now a powerful alternative asset which if developed attractive will definitely guarantee tenanting., Hence, the development of student accommodation will prove to be the next big thing in the real estate.
🏘️Warehousing and Factory Development –
The slow investment in the industrial sector has lead to a chronic shortage of good warehouses that has presented new opportunities for growth in the country. The increase in manufacturing will increase demand for warehouses. Long lease warehousing is one of the most attractive Real Estate investment opportunities in the continent. Thus, setting up warehouses and industries will be an indication that industrial sector could be the next frontier for growth in Kenya.
🏘️Secondary City Retail –
Nairobians now are enjoying ample options for consumers needs like supermarkets, outlets and a broad range of shopping options are available in urban cities of country, however the majority of the small towns remain undersupplied. The county retail must be customized to fit its demographics. We have seen several untapped opportunities in the region’s secondary cities and towns to better serve consumers. Increasing urbanisation should fuel growth in Kenya’s retail sector as there are significant growth opportunities in Kenya’s second-tier cities.
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Property Investment in Kenya
Kenya’s real estate sector is accelerating at a rapid pace making a substantial contribution to the GDP recorded as 13.8 per cent in 2016 rose from 12.6 in 2010 by the Kenya National Bureau of Statistics’ (KNBS) under its annual Economic Survey 2017. The construction industry grew by 9.2 per cent in 2016 from an expansion of 13.9 percent registered in 2015.
Planning to invest in Real Estate Kenya? Here is what all you need to know about, before you start:
- StartUp Capital
- Real Estate Training
- Property Evaluation
- Make the Down Payment
- BuildUp Equity
Let’s discuss in detail.
☀️StartUp Capital Required
Startup capital refers to the money required to start a new investment. To begin with, you have to start building up startup capital. You should start saving a fixed amount every month from your wage. Why not set up an automatic transaction of your salary to a savings account? You can also enquire loan offers for property investment in local banks.
Hence, get ready with an effective financial plan that will enable you to contribute at least 25 percent of the down payment on the residential real estate you’re planning to invest in.
☀️Real Estate Training – Get trained
As a beginner in the real estate industry, it is necessary to be well aware of the latest Real Estate trends and opportunities available in the Kenyan Real Estate market for new investors, only then you can make a smart move. Therefore, find some well-reputed real estate investors that offer real estate seminars to help you learn more about property business and its essentials.
Besides, you can also purchase books on real estate and read more about real estate market in Kenya.
Before you invest into any property, you must know about property assessment. Hire an appraiser who has good experience of property sector. Thus, you can seek guidance from him in evaluating the value of a particular property.
This is important because this will help you understand the financial viability of the property.
If the value of the property meets your standards, you can head on over to due diligence to ensure that the property you’re investing in is free from any type of encumbrances. Once verified, you can move ahead with the down payment. Once the payment is done and the property is handed over to you, this is entirely your decision to either rent the property or build it anyways.
Now, the final step is building up equity for your investment. How will you manage to build this up? Well, one of the solution is to let your property and get mortgage paid by the tenant. Equity is basically the amount of the property you own whether it is a home or just a land. It is important because if the value of home increases which means debt decreases and thus, equity again rises up and you can utilize this amount for investing in other property. This will create a foundation for a successful real estate business. But wait wait wait….Make sure while you are building it up, you definitely have contingency purposes.
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Is There any Boom In Kenyan Real Estate Market in 2018?
The real-estate sector of Kenya is diversified among three sections – people, geography, and property types where people include high, middle and lower sections of society, geography defines the area to be utilized for property developments and property types including retail, office, residential, Industrial and special properties mainly found in urban areas.
A significant growth of about 6% was seen in the real estate market in Kenya in the financial year 2016. The population growth rate is about 2.7% per annum and the urban growth of the country analyzed in 2016 was merely over 27% of the total population of Kenya and is expected to exceed up to 50% by 2020.
Assuming this, the urban population of Kenya is growing as 500,000 people per year which means Kenya needs to construct over 250,000 houses annually for an urban development in the nation.
The author of “The ABC of Real Estate Investment in Kenya, Kariuki Waweru says that investment in real estate of Kenya has never been a promising business move. He described it with a real example –
In 2008, the price of an acre of land in Kitengela was Sh250,000. In 2012, the price of the land had risen to Sh1.2 million. Now, this was the real estate bubble that burst in Kitengela. But people who invested into land got their fingers burnt as in 2017 as the price for the same piece of land was 1.5 million.
Let us explain to you the theory of land economics –
“If you buy a piece of land and its appreciation rate is slower than the rate of inflation, then you are actually making a loss on that investment, even if you sell the land for a profit.”
Hence, if you have invested money on a land with a perspective to earn profit from its appreciated value, unfortunately, it is not the successful move. In case, you buy a land and carry out temporary projects such as building semi-permanent apartments, offices, school, colleges or other properties etc, it may extract value from land rather than a land left for years.
Kenya’s Real Estate sector is one of the key sectors of the nation’s economy. and has been responding to increased demand from a decade. In fact, Kenya has established to be the preferred hub with Nairobi as the center for multinationals as well as other international organizations. Kenyan has seen a boom in most of the private sectors in the mid to late 2000s and the real estate is one of those private sectors.
In response, the Kenyan Government is also participating in every possible way for the economy’s growth. A massive investment in infrastructure development was made by Kenyan Government and apart from this, important steps have been taken to improve legal as well as a regulatory framework for the key sectors in the economy.
So, What is a Real Estate Boom?
BOOM is the situation where the prices of real estate start rising at a higher-than-normal rate if there is a huge increase in the market price of real estate property.
Over the last 8 years between 2007 and 2015, the average price of a 1-3 bedroom apartment in Kenya has risen from 5.2 million shillings to 13.4 million shillings, rendering into a compounded annual growth rate (CAGR) of 14.5 percent. as revealed by Cytonn Report.
The last decade has seen phenomenal investments in real estate of Kenya. Projects worth billions of shillings have either been accomplished or are under construction. The boom has not escaped the notice of international players who have found the country to be ideal for their investments.
What is a Real Estate BUBBLE?
A real estate bubble refers to a periodic event characterized by rapid increase in value and hence prices of property to levels that are affordable by the population, which results in lower demand hence prices declining tremendously. This means a bubble would occur if there were a rapid rise in land and housing prices, to the extent that the properties retail at several times their worth.
A real estate bubble typically occurs in well-established real estate markets.
In 2016, a boom took place in Ruaka, Kiambu County, where land prices almost doubled with an eighth portion of an acre going up from Sh 8 million in January to Sh18 million at the end of the year.
One of the significant reason for a Bubble to occur is increasing demand that supersedes supply, which eventually leads to a property bubble as the prices rise to levels that are unaffordable by the public.
Another significant probability for an increase in real estate prices, especially around Nairobi and other urban centres, is attributable to demographic factors such as a high population growth rate and rural-urban migration.
Thus, there is no bubble in the Kenyan market. Instead of rising demand for land, fluctuating marketing values, and the rapid price increments showing the rising phase of the Kenyan real estate market that is characterized by low supply, high demand leading to increasing prices.
To sum up, Kenya is one of the real estate investment destinations of sub-Saharan Africa. The 44.2m-people country and its 4.2m-strong capital Nairobi acts as a gateway to a regional East African market, which is approaching 150m people. Thus, the industry has been accelerating at a rapid speed and making a substantial contribution to the country’s GDP growth figures on the back of rising demand for multiple-use and residential developments.
Domestically, there is an increase in population,
incomes are on the rise and economy has been outperforming and based on these fundamentals, it is hardly surprising that Kenya, like much of the sub-Saharan Africa region, is arousing the interests of a range of international funds and institutional investors. For professional advice on property market contact :Hayerone – Real Estate Property Development Company Kenya
- Kenya’s real estate market to bounce back in 2018 – Business Today
- Prime Market in Nairobi, Kenya, On the Upswing in 2018
- Kenya’s property market hit milestones despite economic downturn