Real Estate insight 2022

Kenya’s real estate market has grown exponentially, as evidenced by its contribution to GDP, which increased from 10.5 percent in 2000 to 12.6 percent in 2012, 13.8 percent in 2016, and 20 percent in 2021. With an average rental yield of 12 percent for unfurnished units and 20 percent for furnished units, Westlands, Lavington, Kilimani, and Kileleshwa contribute the most. This growth is being driven by;

Infrastructure improvements such as the Nairobi Expressway, utility connections, and airport upgrades; stable GDP growth of 5.4 percent over the last five years, compared to a Sub-Saharan average of 4.1 percent; and demographic trends such as rapid urbanization of 4.4 percent per year, compared to the world’s 2.5 percent, and population growth of 2.6 percent per year High average total returns of 25.0 percent, compared to 12.4 percent for traditional asset classes.

According to the Kenya National Bureau of Statistics, three and four-bedroom homes dominated the Kenyan real estate market from 2010 to 2015. However, demand for larger units has decreased compared to studios, one and two bedrooms, as of 2019. With a rapidly growing population and, more importantly, an expanding middle class, the residential sector has seen the most significant demand, with a national housing deficit of 200,000 units per year and an accumulated deficit of over 2 million units.

Investor Confidence 

Compared to other jurisdictions, Kenya’s property market has the potential for higher rates of return. Foreign investors can also enter Kenya’s real estate market relatively quickly. Foreigners are welcome to purchase ‘commercial class’ land and property in Kenya.

Kenya has shown impressive improvements in transparency, owing primarily to increased regulation of the real estate market as Kenya strives to become an economic hub for East Africa. Private firms and other international advisors are increasingly providing consistent data for Kenya’s real estate market.

The Real Estate Investment Trust (REIT) structure and tax exemption for companies were introduced in 2013, and the country’s listed property market has grown significantly in recent years. International investors, mainly from South Africa, have flocked to Kenya’s property market since the introduction of REITs.

Most foreign homebuyers on the coast north of Mombasa are British and Italian. Foreign buyers in the southern region are primarily Swiss, French, and German. In addition, investors from the United States, Canada, and South Africa frequently purchase real estate in Nairobi for commercial purposes.
Google, PricewaterhouseCoopers, Microsoft, KPMG, Cisco Systems, and UN-Habitat have all established offices in Westlands.

Developers have noticed a housing demand gap created by multinational corporation employees, UN employees, expatriates, and other foreigners who prefer serviced apartments to hotels. This is because they are more affordable and cost-effective, have more space and amenities, and provide a “home away from home” feeling.

Foreigners may own property in Kenya in their names. However, the Constitution (2010), the Lands Act (6/2012), and the Land Registration Act (3/2012), subject to certain limitations, grant the right to any person, either individually or in association with others, to acquire and own land in Kenya. This is significant because many foreign investors have been misled into believing they cannot own property in their names.

The favorable business environment and a hardworking workforce entice foreign and domestic investors to invest in developing properties in internationally renowned vacation destinations such as Masai Mara National Reserve, Naivasha, Nanyuki, the coast, and Nairobi capitalize on the opportunities the country has to offer. This is the essence of property tourism.

A “person who is not a citizen may hold land based on leasehold tenure only, and any such lease, however, granted, shall not exceed ninety-nine years,” according to Article 65(1) of the Constitution. However, when the leasehold term expires, the lease may be renewed.

Exchange Rate Stability 

The East African shilling was replaced by the Kenyan shilling in 1966. From the 1920s until the early 1960s, when Kenya (and other African countries) gained independence from British rule, that currency circulated in British-controlled areas of east Africa. However, because of recent changes to Kenya’s constitution that prohibit individual portraits, the country began issuing new banknotes and coins in 2018.

In 2009, the KES/USD exchange rate was around 75 shillings per US dollar, but over the next few years, it fell to more than 105 shillings per dollar in 2015 and again in 2017. Since 2016, the Kenyan shilling has been hovering around the 100 mark against the US dollar as concerns about the amount of public debt Kenya has accumulated over time. In March 2022, one US dollar equals approximately 114 Kenyan shillings. This represents a 35 percent increase over the last decade, with an annual average of 3.5 percent.

However, the Kenyan shilling is one of the most stable currencies in Africa, making it a popular destination for real estate investments because asset values remain relatively stable in terms of US dollar value. Indeed, it is frequently used in neighboring countries with less stable currencies, such as Sudan and Somalia. However, less volatile than other regional currencies, the Kenyan shilling’s exchange rate has generally weakened relative to the US dollar over the last decade.

The Kenyan Central Bank manages the country’s currency and allows its exchange rate to float freely in the global forex market. The central bank’s mandate is to maintain price stability and liquidity in the country’s financial system and to support growth and employment.

Rental Yields 

The housing market in Kenya is primarily a rental market. Affordability is critical. Access to decent housing is difficult. As a result, only about 20% of Kenyans living in cities own their home

The residential sector is currently experiencing the highest demand due to a rapidly growing population and an expanding middle class. A lovely big house in Nairobi can cost $1.1 million in what is still a developing country. However, the rental returns are pretty good, ranging from 6% to 8%.

According to the study mentioned above, the average rental yield for unfurnished units is 9% and for furnished units is 16%. This is because an abundance of amenities distinguishes the developments.

The increased supply and demand for serviced apartments in Westlands, Lavington, Kilimani, and Kileleshwa has resulted from Nairobi’s status as an essential business hub in East Africa. As a result, serviced apartments are becoming more appealing to investors.

Serviced apartments, unlike hotels, have lower overheads, making them less expensive to operate.

High Returns: Combining long-term and short-term rentals increase monthly income. In addition, when demand for the unit falls, it can easily convert into either furnished or unfurnished apartments.

Despite the challenges of the pandemic, the real estate industry is optimistic for 2022. With mortgage rates expected to stay below 5%, housing demand is expected to remain strong, with an occupancy rate of more than 80%.

Property Value Appreciation 

The population of the major capital cities is rapidly increasing. As a result, more apartment buildings are sprouting up along the skyline. As a result, the demand for this type of apartment living in the appropriate urban or city location is met.

Apartments have followed the same trends as houses in capital growth, particularly in Nairobi, Kiambu, and Thika. Therefore, regarding buying for capital growth, apartments are no longer considered the poor cousins of dwellings.

Additionally, with changing demographics and increased demand for this type of living, the rental yields obtained can provide better outcomes for investors regarding holding costs and positive cash flow.

House prices in Nairobi’s affluent neighborhoods have risen fastest in three years, reflecting an economic recovery that has increased credit and real estate investment.

Due to increased demand for apartments in Kileleshwa, Lavington, Westlands, and Kilimani, these estates have led the market in annual price gains, aided by ongoing road infrastructure improvements and lower prices compared to neighboring areas.

A typical house in these areas is now 8% more expensive than it was in March of last year, outperforming a 4% increase in the year to March 2020 and a 2.6 percent contraction in 2019 due to the pandemic.

This is the fastest increase since March 2018, which was 3.3 percent, reflecting the property market’s recovery from the Covid-19 economic difficulties. 

The real estate sector was among the most affected by the economic fallout of the pandemic. New home buyer orders dried up, owing mainly to income loss as people lost jobs, cautious lending by banks, and investors preferring to keep cash on hand as they rode out the economic uncertainty.

Average Pricing & Rent (Kileleshwa, Lavington, Kilimani, Westland)

Ave. Price (Ksh) Rent/mth (unfurnished) Rent/mth (furnished 80% occupancy)

Studio         5 – 6 million 30,000 – 50,000 90,000 – 110,000 (4,500/day)  

1 bedroom 7 – 10 million 40,000 – 60,000 120,000 – 150,000 (6,000/day)

2 bedroom 10 – 13 million 60,000 – 80,000 140,000 – 180,000 (7,500/day)

3 bedroom 15 – 25 million 80,000 – 120,000 180,000 – 200,000 (9,000/day)

The price range of each type of unit is determined by location and amenities. The table below summarizes the potential annual income from investing in a single furnished studio apartment.

Studio Price = KES5,000,000 ($45,000)

Yearly rental income (furnished) = 90,000 x 12mths = KES1,080,000 ($9,500)

Rental yield = 9,500/45,000 x 100 = 21%

3yrs Capital Appreciation = 5,000,000 x 108% = 5,400,000

                                  5,400,000 x 108% = 5,832,000

                                  5,832,000 x 108% = 6,300,000

In conclusion, Investing and diversifying in the Kenya Real Estate market is a highly profitable venture that will ensure a yearly increase in the company’s net worth through capital appreciation. Despite the Kenyan Shilling’s 3.5 percent annual depreciation, the resulting eight yearly asset percent capital appreciation results in an overall positive increase in asset value in US dollars.