The state of the Real Estates

There has been an unending debate this year about mushrooming malls all over Kenya, Nairobi to be specific. Today, there are more than 15 malls under construction, Others are undergoing renovations in a struggle to attract footfall.

Currently, there are 57 malls and the number will increase to over 70 malls in 2018. In the recent past, Nairobi has seen malls such as Garden City, TRM, The Hub, and new ones are lined up. The new ones are Two Rivers and Riviera Malls on Limuru Road, Capital Centre, Greenspan, T-Mall and Kiambu Mall.  

The retail market in Kenya has experienced increased supply and is currently estimated to be in surplus. Also, the office market is adversely affected, a significant number of office buildings in key office nodes of Upper Hill and Westlands have very low occupancy rates.

Although land in Upper Hill area remained the most highly valued with an acre going for Kshs.521 million and Ruaka the most expensive satellite town at Kshs.68.3 million an acre, the sector experienced a marginal decline in prices as demand in some suburbs fell due to oversupply.

The demand for offices spaces is usually driven by the growth of the services sector. The major players in the services sector include Government, Financial institutions, Professionals firms and NGO’s. Kenya’s real estate market operates in a weird cycle, It starts and ends after every general election.

Over the last decade, Kenya has experienced a real estate boom with prices rising rapidly amid high demand from both long-term investors and speculators, a 1-3 bedroomed apartment skyrocketed from Kshs. 5 million to Ksh 13 million. Interestingly, most of the houses are not standalone units with own compounds but high-rise apartments.This means developers are maximally using land as they seek to reap big from their investments.

The Onset of the current condition in the industry dates back in 2006 when then President Mwai Kibaki commissioned the expansion major roads across Nairobi in an effort to ease traffic congestion in the city. Thika road for instance.

But news of a property doubling or tripling in price always attracts speculators. So, within no time people hurriedly pumped money into acres of land hoping to sell them at higher prices. By 2010, everyone in Nairobi was a real estate investor.

Infrastructure developments, specifical improvements on the road network around the city, have also helped in opening up satellite towns and raising the values of land and homes, which could diffuse the rapid price increments in Nairobi. The most recent case being syokimau, where the newly Nairobi Standard gauge railway terminus was launched. Investors are advertising their land “four hours to the beach”. The pricing is ridiculous as we speak 

Fast forward 2017  land and apartment prices have gone overboard, Affordable housing is long forgotten. Prices are rapidly rising across Kenya as more developers join the sector, it is in the capital that prices have increased sharply ensuring that houses remain out of reach of the average working Kenyan

An acre of land in Karen, which was selling at Sh3.5 million had by then topped Sh20 million and a similar piece of land in Runda had hit the Sh40 million markup from Sh4.5 million in 2005. Today an acre of land in Karen has risen to Sh 70 million and an acre in Runda is now selling at Sh 100 million.The pricing disconnect could be evidence that home prices are overly inflated, a situation made worse by the swelling land prices.

Lack of affordable housing has led overpopulation  in Slums. With about 2.5 million people living in 200 settlements in Nairobi, the slums contain 60 percent of the city’s population, anybody good at maths will tell you over 1.5 million people live in slums.

Slum houses are built with wood, tin, galvanized iron sheets, and latticed wood strips. With limited space, tenants often sleep on the floors. The large population and little space make the cramped feeling of the Kenyan slums unimaginable, but I won’t deviate anymore it is a story for another day, back to The state of the real estate, I think that  Kenyan property prices have exceeded their elastic limits and this can only result in one consequence; recession. An  Economic recession is oncoming.

Current property owners will certainly not realize full returns on their investments. Let me break it down how, The rapid increase in value and prices of property to levels that are unaffordable by the population results to lower demand for property, then prices declining tremendously. This is by far the most I can remember from my business education in high school.

The real estate bubble has bursted!

So what? I hear you ask.

People borrowed heavily at high interests from banks to buy homes. Most investors ditched other economic activities and invested in real estate which promised high returns. Oversupply and loans default eventually brought these investments tumbling down.When the property bubble bursts, it usually affects a country’s economy particularly banks, mortgage firms and insurance companies.

Companies are downsizing and closing down some branches, this coupled up with the capping interest rates by the government has forced banks to retrench some of its workers.

This condition of overplus office spaces,  malls and ridiculous pricing of apartments is not permanent, of course, there has to be a market price correction and a law to cushion the ever inflated prices.

Investors need to be advised to venture into other sectors like manufacturing and agriculture to diversify,   Build factories and not malls and lots of office space.

On a lighter note, how comes speculators haven’t pulled out of the real estate business like the quail busine

 

 

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