Real Estate Business in Kenya

Written by ChrisK

March 20, 2019

Fact Sheet
Real estate is one of the fast growing business entities in Kenya. According to both Kenya National Bureau of Statistics and regional real estate developer, Cytonn Investment Ltd, The industry’s exponential evidence is supported by the contribution to the country’s GDP growth as of 13.8% in 2016.
Additionally, the country’s overall GDP in 2019 is 6% against the average 4.1% in sub-saharan africa. Demographic trend which include rapid urbanization at 4.4% annually against global’s 2.5% has attributed to significant growth in Kenya’s real estate.

2019’s Kenya’s real estate market outlook
The demand for properties, houses, flats, apartments, and hotel rooms in Kenya is ever high. In fact, every day there are over 10,000 searches of properties to rent across Kenya, especially in the cities.
Some of the main reasons are, the rise in the middle-class and population growth across the country; as well as desire to be a home owner. Investor’s desire for higher returns and buyers’ aspiration lifestyles and quality in homes, offices and land.
Offices
Major multinational firms in the African continent have set up base in Kenya’s capital – Nairobi and since they are seeking to expand their operations, the clients are creating a new demand for world-class Grade A offices & climate-friendly, green buildings in the Kenyan market.
Furthermore, Nairobi is gradually rising as an economic hub in the Sub-Saharan Africa, with a high presence of SMEs and Startups. The constant demand is pushing developers into bowing at the driving force in the market and offer increased ambiance, quality and elegance in business environment.
Retail & Industrial
Tremendous growth in the Mall concept has seen Kenya become the second largest retail/shopping destination in the Sub-Saharan Africa, after south Africa. Middle-class preference has played a major role in attracting international retailers in the fast food, fashion & clothing, to the supermarkets.
Online shopping that is slowly gaining traction is also contributing high success rate in the retail sector in the country.
Changes in the preference of distribution and manufacturing process has also brought forth a demand for modern industrial parks, able to accommodate high quality stock.
Hospitality
Tourism in Kenya is also experiencing rebound influx visitors count. Meetings, Incentives, Conferences and Exhibition drive by Kenya’s government has sparked a bid by developers to diversify their revenue streams. For instance, a new concept which involves having both serviced apartments and hotel at the same compound/building; is gaining popularity in the Kenyan cities.
Land Speculation
Agribusiness, serviced plots, and land banking is gaining traction due to quest to increase land values. Infrastructure development and population growth are aiding in the land speculation exercise on the long-run.

Highs and Lows of Real estate in Kenya
Even though there’s a high demand for affordable housing in the country, the industry has experienced some fluctuations and mixed expressions from the home-buyers and developers. These are some of the reasons:
⦁ General Elections: One of the major influence to the trend was the general election that took place back in 2017, and most of the developers didn’t want to undertake huge risks by investing in high-capital-intrusive residential/commercial projects. Post-election, the attitude was ‘wait-and-see’ with hopeful turn of events, that possibly would result into positive environment for investment. The ‘handshake’ by both ruling and opposition government, did bring the stability longed for and as a result, different economic sectors started rising again – real estate being one of them.
⦁ Unfavorable Interest Rates: Though there’s quite a huge FDI (Foreign Direct Investment) in the country, still there are some developers who opt to acquire bank loans for a balanced working capital. On the contrary, the Kenyan banks have stringent guidelines for the loan vetting process leaving many investors access to limited funds. But this might change due to the capping rules on the lending rates by the government’s ministry of urban and Housing.
⦁ Rise in Land prices: The satellite towns outside the main city center and common suburbs are experiencing huge competition in workers’ migration. Some of the families that used to reside in the cities opt to buy homes/piece of land and put up a decent home outside the cities. This has resulted to the strain in the market caused by high land demands. Land prices keep rising non-uniformly across these regions as well.
⦁ Taxes: The government of Kenya has come up with the ‘Big Four Agenda’ (comprises of Affordable Housing, Universal Health Care, Manufacturing & Food Security). But to implement these projects, capital ought to be raised – at the same time, when the country is facing difficult times due to drought and decrease in disposable income. But will the government rethink the tax policies?
⦁ Advanced Building Technology: Though not classified as primitive; Kenyans still rely on the ‘old-fashioned’ way of construction. This entails high reliance on stone and mortar as the raw materials of construction. The question lingering is: How rapidly will those in construction industry embrace modern ways which are cost-efficient and faster?

Conclusion
Kenya’s real estate sector is poised for a booming future. This will also be maintained by emerging local and international players as well as infrastructure development and legal environment improvement.

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