Kenya’s housing market is flashing warnings ahead of August 9 polls

By Remie Otieno

After 18 months of year-on-year home price growth hitting near double digits upturn, the industry is finally starting to see the early signs of a cooling housing market.

It’s a sharp contrast to what the market has been used to since July 2021 when the sector started to taste a return to business, owing to lessening of Covid-19 related restrictions by the government at the time.

But concerns are now sweltering at frightening nuances with industry trends projecting a torrid period for players in the sector who are now confronted by the looming August 9 general polls, rising inflation, weakening shilling and general feeble economy that has been the norm since the pandemic’s inwards in March 2020.

And while observers expect sustained activities in the real estate market in the coming months, they are, however, pinning their hopes on a peaceful transition after the August polls in what is being ballyhooed will be a hotly contested presidential election.

“Our outlook for the residential sector remains NEUTRAL as we expect increased development activities in the residential sector despite expected slowdown in transactions with the upcoming general elections,” notes Cytonn’s prediction for the sector in its weekly sector reviews.

The investment firm further believes that, the local real estate industrial sector has realized various activities that has mainly been fuelled by Kenya being recognized as a regional hub hence attracting investments, expansion of local and international retailers seeking storage space for goods as well as government focus on the Big 4 Agenda on manufacturing which is expected to influence demand for warehouses used to manufacture products.

“We expect these factors to continue driving the performance of the sector,” it said.

Those expectations, however, risk being met, according to the acting managing director of continental realtor, Shelter Afrique, Kingsley Muwowo – who yesterday warned of a possible industry meltdown should the high cost of building materials and exorbitant land prices be left unimpeded.

Mr. Muwowo believes that such worrying concerns could also hamper the desire by private developers to bridge the country’s housing shortage through the affordable housing scheme being championed by the State.

“In Kenya, for instance, the cost of land makes up between 40 percent and 60 percent of the total cost of a housing unit, like the case with Nairobi which is the most expensive in the entire continent of Africa.

How do you deliver affordable housing when you’ve got the most expensive land? So if we don’t address the issues around land we will not be able to effectively tackle the issue of affordable housing,” he wonders.

High cost of land and the rising cost of building materials are universally thought to be the main stumbling block in efforts to speed up the development of affordable housing projects in the country.

In fact market studies show that the cost of land should constitute between 10 percent and 15 percent of the total cost of a housing unit for it to be affordable – but land cartels and rogue dealers in the sector have over the years manipulated land costs, making it difficult for first-time home owners to own properties in the sector.

Kenya’s real estate market is primarily a rental market and affordability is essential. Access to decent housing has remained a challenge and as a result, only about 20 percent of Kenyans living in urban areas believed to own their homes.

With a rapidly growing population and an expanding middle class, the residential sector is currently experiencing the highest demand. In Nairobi, a nice big house can cost $1.1 million in what is still a poor country. On the other hand, returns in the rental market segment are quite good, ranging from 6 percent to 7 percent.