REPORT

Real estate sector improves in 2019/20 despite tough environment

The report noted that the residential sector is expected to continue showing resilience with activity picking up as the economy regains momentum in Q3’2020

In Summary
  • The improved performance was on account of continued growth in the rental market with average rents increasing to Sh536 per square meter in 2020 from Sh532 per square meter the previous year.
  • Dagoretti, Ridgeways and Thindigua were the best performing markets with average annual returns of 9.3 per cent, 8.5 per cent and 7.9 per cent, respectively.
PICTURE-PERFECT: New World Gardens estate off Nairobi-Namanga highway. Photo/JOSEPH JAMENYA
PICTURE-PERFECT: New World Gardens estate off Nairobi-Namanga highway. Photo/JOSEPH JAMENYA

The real estate sector recorded an improved performance in 2019/ 20 despite the pandemic recording average total returns of 5 per cent up from 4.7 per cent in 2018/19, according to a recent Cytonn report.

“The improved performance was on account of continued growth in the rental market with average rents increasing to Sh536 per square meter in 2020 from Sh532 per square meter the previous year,” the report noted.

The sales market also continued to record a price correction amidst a tough economic environment

The report themed “A Buyer’s Market amidst A Global Crisis’’, noted that the residential sector is expected to continue showing resilience with activity picking up pace as the economy regains momentum in Q3’2020.

Dagoretti, Ridgeways and Thindigua were the best performing markets with average annual returns of 9.3 per cent, 8.5 per cent and 7.9 per cent, respectively.

Apartments recorded strong rental yields with areas like Dagoretti and South C achieving average rental yields up to 6.2 per cent.

“While the overall market improved, apartments continued to perform better, registering average total returns of 5.3 per cent, compared to detached units at 4.6 per cent,” noted Cytonn Real Estate’s Research Analyst Wacu Mbugua.

Wacu however noted that due to the pandemic, detached units such as bungalows in the lower mid-end areas are expected to attract more interest from buyers.

Overall, average rental yields improved significantly to 5 per cent from 4.3 per cent last year, indicating sustained demand for rental housing whereas demand for sale houses declined amidst a tough financial environment leading to decline in average price appreciation.

According to the report, Dagoretti and Thindigua were the best performing apartment nodes with average returns of 9.3 per cent and 7.9 per cent, respectively, driven by the continued demand from young middle and working populations due to affordability and proximity to key commercial.

 

Kahawa West and Ngong recorded the lowest returns on account of decline in asking prices in the areas, attributable to loss of appeal as homebuyers opted for other lower mid-end areas with better infrastructure and closer to CBD especially in the case of Ngong.

For detached units, Ridgeways recorded the highest price appreciation and annual returns at 3 per cent and 8.5 per cent, respectively, compared to the detached markets averages of 0.1 per cent and 4.6 per cent.

The area’s performance is boosted by the relatively low supply coupled by presence of good infrastructure and amenities as well as proximity to Runda and Muthaiga, which are high-end areas.

The report also ranked the most attractive investment opportunities out of the 31 sub-markets in Nairobi Metropolis, Ruaka and Westlands ranked as the best opportunity for apartments driven by relatively high uptake at 23.9 per cent and 22.6 per cent, respectively.

Runda Mumwe and Ruiru present the best opportunity for detached units driven by relatively high returns of 5.5 per cent and 5.8 per cent, respectively, in comparison to the detached market average of 4.6 per cent.

“In terms of supply, the sector is expected to experience a slowdown in construction activities, due to the pandemic that has resulted in supply chains disruption, reduced revenues for developers coupled by high development costs and insufficient access to credit,” Wacu concluded.