NAIROBI, KENYA: Are you thinking of investing in real estate in Nairobi, a new survey says you should start thinking Langata, Juja, Ridgeways and Thindigua areas.
The Cytonn Real Estate survey which focused on investment opportunity in the residential sector in Nairobi Metropolitan Area says, the areas scored highly either because of proximity to town, low supply of residential units and lower prices.
“This is mainly as a result of proximity to high-end suburbs for Thindigua and Ridgeways, proximity to the CBD and other business nodes for Lang’ata and low supply of residential units and lower prices for Juja,” report says.
Cytonn Investments Chief Investment Officer, Elizabeth Nkukuu noted that real estate sector continues to deliver attractive returns for investors while the public markets are delivering average returns.
“Development of residential real estate continues to provide attractive returns, while delivering housing to combat the housing deficit of 2 million units, which grows by 200,000 units per annum. The key drivers for the increments in house prices for the best performing zones prices have mainly been high demand in the areas, ease of access from the CBD and other business districts, and lower prices compared to houses in other similar nodes,” she says.
According to the report, on average prices increased by 3.8 percent in 2017 compared to 7.4 percent increase in 2016 while rental yields remained fairly stable averaging at 5.6 percent in 2017 compared to the 2016 average of 5.2 percent.
“The continued price appreciation, though subdued, and higher rental yields indicate sustained demand for rental housing whereas demand for housing for purchase slowed down,” noted Head of Private Equity, Shiv Arora.
“The deceleration can be attributed to the wait and see attitude adopted by investors as a result of the August Election and reduced access to credit in the market, as a result of implementation of the Banking Amendment Act 2015. With the elections set to be held in November, we expect the slowdown to be sustained for the rest of the year and the market to pick up in 2018.”
To identify the investment opportunity in the Nairobi Metropolitan Area, the report ranked the various submarkets based on uptake of residential units, price to land multiple, total returns earned in the area, availability of development land, state of infrastructure and the distance from the CBD to the various suburbs.
Based on the ranking, Juja and Runda Mumwe were the best areas to invest in detached units mainly due to high uptake, returns and the availability of development land.
The main challenge with Juja, however, is infrastructure which may result in high costs for the developer. For apartments, Ridgeways and Kilimani are the best areas to invest in apartments mainly due to high uptake, returns, and proximity to main business nodes in Nairobi.
The Report noted that the key drivers for the residential sector are mainly i) population growth at 2.7 percent, compared to a global average of 1.2 percent, ii) urbanization at 4.4 percent compared to a global average of 2.0 percent, iii) improved infrastructure, and iv) increased incomes as seen through economic growth with an average GDP growth rate of more than 5.0 percent over the last five-years.
It expects that a new government incentive such as reduced taxes and scrapping of various fees is likely to spur development. The key challenges remain to be high land costs, high construction and infrastructural costs and access to financing hindering provision of affordable housing. The report forecasts the slowdown witnessed in the year so far be witnessed to the end of the year with the market picking up in 2018.