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December 10, 2018

Factors likely to shape real estate landscape in 2016

The Mirage Properties located along the Waiyaki way.
Photo/Enos Teche
The Mirage Properties located along the Waiyaki way. Photo/Enos Teche

As 2015 draws to a close, the big question on all real estate professionals’ lips is: what will 2016 hold?

Migration from metropolitan areas, infrastructure improvements and increased international interest from investors are some of the expected developments for real estate market in emerging markets including Kenya:

 

1.App focus

 Mobile is driving innovation in the country. Internet users are skipping the traditional desktop usage, and moving straight to mobile. While 2015 saw more emerging markets-focused companies developing their Internet presence, 2016 will see real estate professionals turning their attention to apps. Mobile penetration in Kenya stands at 83.9 per cent of the population, while Internet users are at 26.1 million – an equivalent of 69 per cent of the population.

As a result of high costs of Internet services, apps are increasingly popular when it comes to interacting with online companies. As Internet penetration strengthens in second-tier and suburban areas, reduced mobile connectivity costs, more affordable data packages and the evolution of mobile technology are driving app usage.

 

2.Second-tier growth

 Industry professionals have already noted the increased attraction of commuter towns in emerging urban areas. Rapid population growth has led to physical growth of urban areas in towns including Ruaka, Thika, Kitengela, and Ongata Rongai. As Nairobi become slowly saturated, real estate developers and investors alike are turning their attention to fast-rising urban areas where property is significantly cheaper as a result of higher land availability and lower building costs.

Lamudi Kenya managing director Dan Karua says 2016 will see the development of dormitory towns around Nairobi as local and International investors seek to improve transportation services, water and electricity supplies, and develop infrastructure.

 “This is essential if these urban centers want to compete with bigger markets, both locally and internationally,” Karua says. “By shifting focus from capital cities to smaller areas, investors get more for their money due to lower costs of land, resources and building materials. Developers have more space for construction. This makes these second-tier cities a very attractive option for real estate professionals.”

 

3.Commercial property growth

 Demand for commercial property is increasing because of rapid population growth, urbanisation and economic development in emerging economies.

 This includes mixed-use developments, shopping malls, retail space and office units.

 The next 12 months will likely see an increase in commercial property developments across the emerging markets, as the sector must accommodate population and tourist growth, as well as increased interest from international corporations.

 These projects are not only driving economic growth, they provide employment opportunities, and boost the value of surrounding properties.

 4.REIT availability

 Will 2016 be the year of the Real Estate Investment Trust (REIT)? The last 12 months have seen a number of real estate investment trusts opening in the emerging markets, encouraging investment into the sector. In October of this year, the Capital Markets Authority approved Kenya’s first income REIT [I-REIT] by investment manager Stanlib Kenya. This marked the first ever licence to an asset management firm to list on the Nairobi Securities Exchange.

 5.Increase in foreign investment

 Laws are changing in many of the emerging markets. While it is still not legal to own property in all countries, new legislation is being drawn up to encourage real estate investment.

 FDI inflow into the African real estate sector was strong in 2014, according to Ernst & Young data. Real estate, hospitality and construction was, in fact, the fourth most attractive sector by FDI project numbers in Africa in 2014.

This is expected to improve over the next 12 months. In Kenya, private and foreign investors are developing new housing projects to tackle the housing deficit of 2012. Currently, three housing projects are in the works with 76,000 units.

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