We are seeing new low-cost projects targeting women and youth. How are they performing?
This is being driven by the exposure and the sophistication of the market and the increased number of working women who are financially independent. These are buyers that were not being catered for before. The US$12,000 houses are now stretching the pyramid. There is demand for this among women and investment groups that are quite common in Kenya. This will help broaden the market.
Kenya has just over 20,000 mortgage accounts. Why is this the case, even though the middle class is growing?
Well, the mortgages are too expensive. If you buy a property and rent it at return of 6% to 8% and you are paying your mortgage at an interest of 18%, the math doesn’t add up. I think mortgages are just not accessible to most people. There is also an element of fear.
What opportunities are there in the Kenyan market for investors?
The returns in Kenya’s property market are good. It is usually about 25% to 30% on development and up to 8% on rentals, but the capital growth is good. It has always been a very solid investment. It has been a very well performing market. This is not yet a mature market and any time you have a growing market you have opportunities. I think that given the experience of the last election foreign investors will shy away for the moment and wait for the outcome. There are many foreign investors in the market though, and many are coming. We are seeing institutional investors pumping billions in real estate projects. In the past, institutional investors shied away from real estate because it has its characteristics; it is not very liquid and it requires huge amounts of investment. Now they are seeing that real estate is outperforming other markets and it is secure. With the development of the real estate investment trusts (REITs), we expect a lot more institutional investors. Real estate is capital intensive and we think REITs will bridge that gap.
Describe some of the hurdles facing the industry
Financing is a huge challenge, both from the perspective of the developer and the buyer. For developers, the cost of land is very high and almost prohibitive. Developers have to invest in infrastructure to make their projects viable. It is becoming more and more difficult to deliver a good value project simply because the costs are very high. There is also red tape in getting approvals but those are things developers can deal with. The costs are what I would say are prohibitive.
What are the trends to watch out for?
We are seeing more high-rise and mixed-use developments as well as comprehensive schemes that are more lifestyle based, both outside the city and within. The middle class has blossomed in the last decade and that is the market that is driving a lot of these aspirational properties. The golf and gated estates outside the city will start developing into little suburbs and satellite cities, easing pressure on Nairobi.