Real Estate Boom In Kenya 2018 – Is It Real?
Real Estate Boom In Kenya 2018 – Is It Real?
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 of 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