A projection into Kenya’s Real Estate Market 2021

A projection into Kenya’s Real Estate Market 2021

The saying, “Don’t wait to buy real estate. Buy real estate and wait ” perfectly amplifies Kenya’s Real Estate Market 2021 , as evidenced in the robust growth registered in the last two decades. According to a report released by Cytonn in January 2021 the real estate sector contributed to an increased GDP (Gross Domestic Product) of 10.5% in the year 2000, up to 12.6% in 2012, and 13.8% in 2016.

Why the growth?

This growth in Kenya’s real estate sector is attributed to the following key drivers:

  • Infrastructural developments: For example, construction of new roads and by-passes, utility connections, e.g. electricity, water, and sewerage, including upgrading of key railway lines, the SGR (Standard Gauge Railway), ports, and airports
  • Stable GDP growth: Averaging 5.4% in the last 5 years, compared to the Sub- Saharan one of 4.1%
  • Demographic trends: This is especially in the fast urbanization at 4.4% Per Annum, compared to the world’s at 2.5%.  At the same time, the population growth is averaging 2.6% Per Annum
  • Attractive total returns: close to 25%, compared to 12.4% in the conventional asset segments

2021, the defining year

Kenya’s Real Estate Market 2021

2020 takes a history position as one of the most tumultuous years due to the COVID 19 pandemic. Its impact on the global economy is obvious, and it is unclear how bad things will get following the new strains of the morbid flu.

Like many other sectors, the real estate in Kenya was caught up in the raging waters, although it has fought hard to remain afloat.

During the first quarter of the year 2020, the commercial property space underwent a 68% recession in office space uptake.

 A report by Knight & Frank Kenya, one of the leading Real Estate firm says that if this pandemic continues, in the mid to long-term, employers may take necessary measures to minimize overheads, by downsizing or foregoing their office spaces.”

Indeed, there has been an increasing tendency where landlords and tenants have agreed on flexible payments as long as possible, due to depressed cash flows.

According to a report captured in one of our local publications, the Government of Kenya and Ministry of Health directives including; social distancing, travel restrictions, curfews, and county lockdowns, have impacted negatively on the various property segments. (Retail, Commercial, Travel, Hospitality, and Leisure.)

The situation is looking even grimmer, with the Government reversal of the stimulus measures that had been put in place to cushion the general population from the harsh effects of COVID-19

Together with the introduction of a new taxation regime, levels of disposable incomes are expected to decline, thus constraining investment in Real estate.

Capital intensive venture

kenya real estate market news
USD bills: Photo by Alexander Schimmeck

It’s a fact that Real Estate investment calls for a huge capital outlay. In July 2020, the Central Bank of Kenya (CBK) reported that the value of Non-Performing (NPL) loans had hit the all high of Kes 366 billion!

This situation’s net effect is that an increased number of repossessed homes are now being disposed off at low prices.

A case in point is a leading mortgage lender, Housing Finance Group who reported KES 652 million (Equivalent to US$ 6.37 million) loss in 2018, and another KES 97 million (Equivalent to US$ 950,000) in the first six months of 2019. ( listed for auction KES 2.5 billion (US$ 24.4 million) worth of houses)

This year, the pandemic has forced most property developers to suspend or downgrade their projects, while others are experiencing challenges accessing credit facilities from commercial banks.

Residential space projections

Kenya’s Real Estate Market 2021

Statistics indicate that the nationwide housing shortfall is standing at 200,000 units annually, while the accrued deficit is over 2 million units. (Africa Housing Finance Yearbook 2019.)

This means that the country has a large rental market, considering that about 84% of Kenyans live in rental houses.

In June 2020, The Kenya National Bureau of Statistics (KNBS-Kenya National Bureau of Statistics) carried out a survey that indicated that for every 10 households, 6 had their breadwinner rendered unable to provide due to the COVID-19 pandemic.

With thousands of Kenyans struggling to pay rent due to the pandemic-causing lay-offs and redundancy, some have engaged their landlords to reduce or waive the rent. A good number have relocated from cities like Nairobi to their rural areas.

An interesting trend is being observed where prospective buyers and tenants citing the current pandemic, are pushing for low rent/buying offer to get a “good deal” from distressed property owners.

This phenomenon’s cause-effect is a boom in lettable residential space, with the attendant effect of low demand leading to low rental income.

Conversely, the wait-and-see attitude adopted by both the buyers and sellers is likely to see few property transactions done the better part of the year 2021. 

The Mortgage market

factors affecting real estate market in kenya
House for sale: Photo by Pixabay.com

Kenya’s mortgage market remains one of the most undeveloped globally, with only about 26,000 mortgage loans achieved by 2020. This indicates that most banks in Kenya consider housing finance a less attractive venture.

Besides this deficiency in housing financial support, mortgage interest rates are quite high ranging between 12-15%, thus contributing to the huge housing deficit in the country.

Ironically, Savings and Credit Cooperatives (SACCOs) contribute 90% of the Kenyan economy’s housing projects. Moreover, their credit facility is much accessible and cheaper than the banks.

Many players in Kenya’s Real Estate Market 2021 concur that there is an urgent need to reform the way mortgages are structured. Of critical importance, is to ensure funding is released during the construction period, not just when properties are completed.

Kenya Mortgage Refinance Company (KMRC)

factors affecting real estate investment
Photo: instagram.com@KMRC

On May 22nd, 2019, President Uhuru Kenyatta launched the Kenya Mortgage Refinance Company (KMRC). This financial institution’s core function is to provide long-term loans to major mortgage lenders.

With an initial capital base of 35 billion shillings (equivalent to 350 million U.S. dollars), the institution is expected to address essential financing challenges and open liquidity for affordable housing.

It is expected that KMRC will tremendously contribute to developing the housing finance market in Kenya, thereby reversing the low mortgage penetration.

The Government’s Affordable Housing Initiative, which is part of the ‘Big Four’ agenda, aims to deliver some 500,000 affordable housing units by 2022.

 Pricing for these affordable units ranges from KES 600,000 (equivalent to US$ 5,861) for a bedsitter/studio apartment, to KES 3 million (equivalent to US$ 29,305) for a 3-bedroom apartment unit.

The post-Covid-19 era offers some glimmer of hope, with the continued interest in the Kenyan property market by both the diaspora and local players.

Coupled with a sustained investment in infrastructure and a favorable legal regime, the Kenyan real estate sector has enjoyed accelerated growth and the future looks quite promising.

Even though analysts are yet to officially issue a comprehensive report on real effects of COVID 19 on Kenya’s Real Estate, the ultimate impact might be quite extensive.

However, a lot will depend on its duration and measures undertaken by various governments, organizations, individuals, and stakeholders who are determined to alleviate the adverse consequences.

For now, every indication is that few new properties will be put on the market this year. Please share your thoughts regarding Kenya’s Real Estate Market 2021 in our comment section below

Read also:

Leave a Reply

Your email address will not be published.

Related Posts


Enter your keyword