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July 17, 2018

Glut in prime housing is open door to lower rent

National Housing Corporation’s flats in Nairobi West. Apartments dominate the rental market./ENOS TECHE
National Housing Corporation’s flats in Nairobi West. Apartments dominate the rental market./ENOS TECHE

A saturated prime residential market has resulted in weaker rental growth giving tenants more leverage to negotiate with their landlords.

A market report by Knight Frank shows Nairobi’s prime residential market has witnessed a price correction in recent years, an indicator of maturity in the Kenyan real estate market as vendors adjust their price expectations.

“New construction of prime residential properties is continuing apace in Nairobi and the abundance of supply ensures availability for those seeking bargains,” Knight Frank Kenya managing director Ben Woodhams said. “However, affordability remains an issue for the local market, with much of the new stock beyond the means of most people. The biggest issue is access to credit.”

This is following a period of unprecedented growth from 2010 to 2012 when annual price growth exceeded 30 per cent annually.

In the inaugural report dubbed Inside View Kenya, prime residential prices increased marginally by 0.9 per cent in the nine months to September 2017 compared to a percentage point decline in a similar period in 2016.

“The prevailing market conditions, coupled with the already high capital values of prime residential homes, have however resulted in low transaction volumes,” the report stated, adding corporate budget cuts by multinational firms had further influenced the performance of this high-end residential market segment.

The report shows the law capping interest rates, introduced during the second half of 2016 led to a slowdown in credit growth as financial institutions were reluctant to lend to individuals.

“Lenders have since shifted their focus to corporate borrowers and investing in government bonds. This trend has continued into the second half of 2017,” the report stated.

The report notes that currency movements over the two years to November 2017 have made it cheaper for foreign buyers, as purchasers acquiring prime residential properties save up to 8.2 per cent through euro-denominated transactions, while dollar-denominated purchases are 1.4 per cent cheaper.

However, despite the slowdown in activity, transactional activity in sales is expected to pick up in 2018 as the market stabilizes from the wave of political uncertainty.

“In a market dominated by expatriate tenants, Nairobi and Mombasa continue to attract interest from both local and international buyers,” Woodhams said.

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