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November 15, 2018

Satellite towns beat suburbs in returns

An apartment in Ruaka where land is most expensive among satellite towns.
Photo/FILE
An apartment in Ruaka where land is most expensive among satellite towns. Photo/FILE

Satellite towns are generating higher returns for developers than suburbs in Nairobi, according to the Hass Property Index for the third quarter of the year.

The report published last week suggests developers are increasingly preferring the satellite towns, a break from the past when they preferred being close to the city.

HassConsult said the development will likely have an impact on land prices in the fourth quarter [October to December].

Satellite towns are smaller metropolitan areas near large cities or towns but are largely independent. They differ from suburbs which are mostly residences within a commuting distance of a city and are dependent on them.

The survey says land prices in the 14 satellite towns around Nairobi have grown by 627 per cent in seven years.

They include Juja, Athi River, Kiserian, Kitengela, Mlolongo, Syokimau and Tigoni. Most of the residents, the report says, are low- to middle-income earners.

HassConsult head of research and marketing Sakina Hassanali said investment groups, co-operatives societies, learning institutions and individuals are now scouting for land in these towns.

This comes at a time when investment in property is generating more cash in annual returns than equities and fixed-income securities like bonds.

“The attractive returns in land in these satellite towns has become a key driver of demand,” Hassanali said.

While land in Nairobi’s suburbs registered high levels of growth in the first half of the year, third quarter growth slowed.

Land prices in Ruaka declined by 0.1 per cent in the third quarter while in Mlolongo, they contracted by 1.2 per cent – the highest drop.

In Ridgeways and Langata, the drop was 1.4 and one per cent, respectively.

An analysis of data collected by HassConsult shows overall increases in land prices in the satellite towns and the Nairobi suburbs averaged 1.45 per cent between July and September.

Ruaka had the most expensive land per acre, among satellite town, at an average Sh56.5 million. It was followed by Kiambu where an acre was selling for an average Sh34.9 million, while in Mlolongo it sold for an average of Sh27.9 million.

Land prices in Ngong were at Sh17.4 million per acre while in Tigoni, the cost was averaged Sh17.8 million.

In Syokimau, Thika, Ruiru and Limuru, an acre ranged between Sh14 million and Sh17 million.

In terms of house prices, home buyers for upper low- and middle-income houses in Athi River were the hardest hit, according to the report published every quarter. House prices went up by 6.3 per cent compared to the previous quarter.

“Asking prices for property on sale in Nairobi’s satellite towns have risen by three per cent compared to the previous quarter. This is the biggest upswing in almost two years,” said Hassanali.

Homeowners in Kiambu, Limuru, Mlolongo and Kiserian have also been affected by house price inflation with properties for sale going up by four, three, 2.4 and 2.1 per cent, respectively.

This was attributed to the high interest rates after the Central Bank raised benchmark interest rates to help tame volatility in trade of the shilling against the bullish US dollar.

The increased lending rates took effect during the quarter, jolting the loan repayment schedules for developers.

This coupled with higher mortgage rates led to the increase in house prices in the satellite towns, Hassanali said.

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