Rents dropped and land prices eased in Nairobi and the surrounding counties of Kiambu, Kajiado and Machakos in the first three months of the year with effects of the coronavirus pandemic expected to further hurt the property market on reduced demand.
HassConsult, which conducts a quarterly property pricing index in Kenya, said yesterday that rents dropped 0.7 percent in the three months to March, compared to a growth of 8.7 percent in a similar quarter last year.
It linked the fall, the first since it started tracking prices more than a decade ago, to an oversupply of homes amid reduced demand.
The consultancy firm expects deeper cuts in rent in the current quarter ending in June as the effects of coronavirus—which have led to job losses and closure of some firms—push tenants to pressure landlords to cut or defer home and office leasing costs.
Average land prices in Nairobi increased 0.28 percent in the quarter to March, a slowed growth compared to the 1.4 percent rise in the same period last year and 17.6 percent increase in a similar quarter in 2015.
Housing has been one of Kenya’s fastest growing sectors over the last decade, fuelled by a growing middle class, with returns from real estate outpacing equities and government securities.
This fuelled a boom in land prices whose prices have increased nearly four-fold in Nairobi and surrounding satellite towns like Kiambu, Ongata Rongai and Kitengela.
The feverish rise in house and land prices has led to a bubble, setting the stage for multi-billion shilling loan defaults from property developers who had pegged their bets on Kenya’s real estate.
“As more companies scale down operations and send Kenyans home due to the ongoing pandemic there will be pressure on landlords to give waivers or discounts,” said Sakina Hassanali, head of property development consulting and research, at HassConsult.
Some companies, especially in the hospitality industry, have sought to suspend rent payments in the race to protect their liquidity amid a sales collapse after the State imposed tight lockdowns on public life to slow the coronavirus pandemic.
“Investors showed reduced appetite for land on speculation that there is room for further price drops due to the Covid-19 pandemic.
The pandemic has caused an economic slowdown, which could potentially further see adverse activity in the sector,” said Ms Hassanali.
“Apartments in Kitengela reported a 10.4 percent drop in rental prices, Mlolongo (-7.8 percent), Syokimau (-3.5) and Kiambu reported a three percent drop,” she said.
Rents in high-end estates like Kitisuru, Loresho and Spring Valley—which attract premium rates–dropped 7.7 percent, 7.3 percent and 6.5 percent respectively.
Rents dropped 0.2 percent in Donholm, but Westlands and Langata backed the trend with leasing costs rising 3.5 percent and 0.3 percent respectively
Land prices in Gigiri and Riverside dropped by the biggest margin of 7.2 percent while in Kilimani, Lavington and Runda fell by 2.3 percent, 2.7 percent and 1.9 percent.
But increases in Muthaiga (6.3 percent), Karen (2.5 percent) and Kitisuru (2.2 percent) as well an average rise of 6.5 percent in satellite towns of Ruiru, Ruaka, Kitengala and Juja helped to keep average prices higher.
Upper Hill is listed as the costliest location to buy land, with an acre there going for Sh530 million followed by Kilimani at Sh420 million, Parklands (Sh401 million), Riverside (Sh364 million) and Kileleshwa (Sh308 million).
The land prices boom in satellite towns has been driven by Kenya’s growing middle class who cannot afford property in the capital.
The high appetite for property saw coffee plantations in Kiambu cleared to pave way for gated housing estates and shopping centres.