The annual Wealth Report published by Citi Private Bank and global real estate managers Knight Frank, has come up with startling findings in its property section. Luxury homes in Nairobi and the Kenyan coast (Mombasa, Malindi and Lamu) were the best-performing prime residential property markets in the world. Compared to other well-known global locales, Nairobi and the Kenyan coastal towns experienced the highest rise in property prices in 2011 globally.
According to Knight Frank’s tracking Prime International Residential Index (PIRI), out of the 71 best prime residential property locations surveyed, the Kenyan capital, Nairobi recorded the highest growth with a 25% increase for high-end residential properties. The Kenyan coastal resort towns came second with a 20% increase.
The report illustrates that the performance of the Kenyan real estate sector has helped debunk the myth that all safe haven locations are in the Western world.
“The startling performance at the top end of Kenya’s housing market is a particularly interesting example of this,” the report says. “Price growth in both the Kenyan capital Nairobi and the country’s Indian Ocean coastal hot spots outstripped all other PIRI locations, with Nairobi chalking up a 25% increase last year.”
Miami came third at 19.1% in the survey followed by Bali (15%), Jakarta (14.3%), London (12.1%), Vancouver (10.4%), Moscow (9.8%), Toronto (8.5%) and Beijing (8.1%) in the top-10 positions. Cape Town, the only other African city to feature in the PIRI index, came in 21st position with a 2.4% increase.
These findings have come just when Kenyan realtors and financiers were predicting slow growth in the sector owing to high interest rates, a weak shilling and the forthcoming Kenyan general elections. However the story emerging from the real estate sector tells a different story from that anticipated by the industry players.
Indeed, since 2002, the Kenyan real estate sector has experienced a boom, confounding many in the region. While other property markets in the world dipped, the Kenyan environment remained strong and the latest findings seem to forecast better times ahead. Kenya’s rapid economic development and a dynamic business regime are some of the reasons being given for this drive. While other top world cities are experiencing capital flight, Kenya seems to be benefiting by attracting both international and domestic private equity. Another key mover of the sector is said to be remittances by the Kenyan diaspora.
“In February 2012, remittances to Kenya amounted to $104m which was 71.12% higher than the level in February 2011 and 15.84% higher than what was recorded in January 2012,” Charles Gitari, the director of research at the Central Bank of Kenya says.
This demand for real estate space has seen the perimeters of Nairobi and the coastal resort towns expanding to bursting point. Improved infrastructure in terms of roads, access to utilities, communications and financial services are some of the factors being attributed as influencing Kenya’s real estate performance. And this phenomenon is not just limited to Nairobi and the coastal towns. It extends all the way to Kenya’s Rift Valley and its western frontier.
“A key determinant that has made our real estate sector to be seen as fresh and full of creative innovations – which has seen far-flung towns being given the feel of a modern city – is the influx of young people in the real estate business,” Bryan Mageria of Crown Homes Management says. “We have seen Kenyans coming from the diaspora not only willing to invest their funds but even bringing new ideas on real estate from their foreign bases and implementing them here.”
Splurge of new developments
The rising demand for quality housing and plush office space has seen the emergence of innovative and futuristic multibillion-dollar gated communities and mini cities.
These include Northlands City, Thika Greens Golf Estate, Fourways Junction, Tatu City, Migaa Golf Estate, Edenville Estate on the outskirts of Nairobi, New Nyali and English Point Marina in Mombasa and Mukima Ridge and Mount Kenya Wildlife Estate in Laikipia. All these innovative and creative developments have been cashing in on Kenya’s improved global status, credit ratings and robust government investments on infrastructure developments.
Leslie Duckworth, who runs Mukima Ridge in Laikipia, some 350km away from Nairobi, and has other property in Lamu, gives a glimpse of the kind of clients seeking such plush secluded settings: “Lamu and Laikipia attract expatriates,” he says. “Both offer a perfect holiday venue, which makes the properties highly rentable. Laikipia, with its friendly communities, wonderful climate, good communications and public services is attractive to retirees, families and self employed young professionals alike. Lamu is a popular luxury holiday venue.”
Mukima Ridge contains country-style ranch houses with dining rooms, wrap-around verandas, en-suite double bedrooms, double carports, staff quarters and a two-room guest house all nestling in a ridge on the flanks of the picturesque Mount Kenya. Each of the 10 houses occupies 13-15 acres; and six have already been bought.
On the other hand, the Mount Kenya Wildlife Estate at Ol Pejeta is set in 1,000 acres adjoining the 90,000-acre Ol Pejeta ranch. This development will comprise 100 homes clustered around water holes and salt licks with unhindered views of Mount Kenya, Aberdares and Loldaiga hills. These two estates are an example of the level of creativity that realtors are employing to woo customers.
One factor in the boom, not usually associated with real estate deals, is romance. Andrew McGhie, who is proprietor of the highly successful Lamu Island Property, reveals that “romantic reasons” play a significant role in property acquisition in some of the coastal regions in Kenya. “For expatriates and overseas buyers, acquiring a property in Lamu has usually been a romantic, creative decision, rather than a purely financial one.”
Indeed the marketing of Kenya as a place of ‘dreams’ and ‘romance’ reasons are playing a big part in the flourishing of the country’s real estate sector.
During the 2008–2010 global property meltdown, Kenyan was warned it was facing similar dire straits but these predictions never scared off investors. Instead a new vogue dubbed, “off-plan buying” has taken root in the Kenyan market. The craze is being exported to neighbouring countries, much to the delight of developers there.
Earlier in the year financial analysts had warned of Kenya’s looming property bust and a slowdown in the sector. Most real-estate players were in agreement that the boom time in the sector was over and hard times beckoned, courtesy of the high interest rates. Instead, the Kenyan real estate sector is still bullishly charging forward.
Now real estate entrepreneurs are giving the thumbs up to the sector and putting on a brave face to ward off uncertainty in the highly profitable segment. Another boost to the sector players is the move to introduce Real Estate Investments Trusts (Reits) by the Capital Markets Authority (CMA). Under these plans, real estate companies will be listed in the Nairobi Securities Exchange (NSE).
Spiralling property prices
According to the Kenya National Bureau of Statistics, during the last decade, the real estate demand in urban centres has exceeded the supply by more than five times. Locals and an ever-increasing expatriate community including diplomats, and staff of the various UN agencies and multinationals are looking for permanent high-end homes within easy reach of public services, access to basic amenities, communications, utilities and financial services.
In addition, a stable political climate, heavy remittances by Kenya’s diaspora, hefty pensioners’ funds, private equity investments and the large base of expatriates have pushed property prices to an all-time high.
This combination of factors has led to spiralling costs of housing and escalating property prices. Investors in the property market have had a swell time in the recent past.
Two years ago, undeveloped quarter-acre plots in the outskirts of Nairobi, Eldoret, Laikipia, Naivasha, Nakuru and Kisumu were fetching some $8,400; today prices have reached $19,200.
Has the boom has reached its peak and is about to decline or is this the beginning of a cycle that will continue well into the future? Guess correctly and your fortune is made.