NAIROBI, KENYA, APR 30 —Land prices appreciated in most areas in Nairobi Metropolitan Area growing with an annual appreciation of 3.7 per cent in 2017, a survey by investment firm— Cytonn Investments has revealed.
This is however down from growth with a six-year Compound Annual Growth Rate (CAGR) of 17.4 per cent.
Cytonn Real Estate, the development affiliate of Cytonn Investments which conducted the survey in 17 suburbs and 11 satellite towns in the Nairobi metropolitan area , has attributed the slow growth to “the tough operating environment in 2017.”
Speaking during the release of the survey,senior manager, regional market, Johnson Denge, noted: “The key factors driving land prices have mainly been positive demographic such as a high population growth rates of 2.6 per cent per annum, higher than global averages of 1.2 per cent.”
“Aa rising middle class with increasing purchasing power, continued investments in infrastructure such as roads, water, sewer and power connection, reduced supply of development class land at affordable prices, and a robust real estate sector,” he added.
Based on individual zones performance, High rise residential areas recorded the highest capital appreciation rates, growing by 4.8 per cent year-on-year against a market average of 3.7 per cent.
The growth was supported by high returns per unit of land value as the areas allow for densification, and increased demand for housing from the growing middle-income population.
Areas zoned for commercial development such as Westlands and Kilimani recorded annual appreciation rates of 3.4 per cent year-on-year, down from a six -year CAGR” of 20.0 per cent.
The slowdown in growth is attributed to the increased supply of commercial developments, with offices having an oversupply of 4.7 million square foot in 2017, and therefore a decline in demand for land for commercial developments.
Site and service schemes had the lowest appreciation rates with the asking prices growing by 2.7 per cent year-on-year, lower than the 3.0 per cent recorded for unserviced land in the same localities.
Implying that buyers are not willing to pay a premium for the services provided, rather opting for unserviced land which is cheaper, and providing the services on their own, in areas such as Ngong, unserviced land is 36.0 per cent cheaper than serviced land.
The report noted that the land sector is facing challenges such as inadequate infrastructural development as seen through the shortage of trunk infrastructure such as electricity, water drainage, sewer and roads in specific areas.
Last year’s extended electioneering period slowed real estate sector performance, the survey notes, which reduced demand for land.
The sector is also having a difficult legal environment characterized by long procedures in title deed issuance and cases of double titling.
The factors expected to shape the sector in 2018 are government land banking initiative, digitization of land ministry, and the relaxation of zoning regulations of some suburbs such as Spring Valley.
“Karen, Kilimani, Ridgeways, Juja and Kasarani were among the best performing sub markets in terms of capital appreciation, recording annual rates of more than 5.0 per cent in 2017, and are thus the most attractive areas for both land and real estate development,” the survey notes.
For site and service, Thika offers investors the highest expected returns of an average 9.7 per cent against a market average of 3.7 per cent.
Research analyst Juster Kendi noted: “Thika’s price appreciations was boosted by speculative tendencies brought about by the growth potential of the area and urbanization pressure due to devolution.”
The submarkets with the lowest returns were Nyari, Riverside and Upper Hill attributable to increased land prices over the last five years, whereby the area recorded an annual growth of 20.8 per cent, an oversupply of office space in the node as well as traffic congestion into and out of the area that has led to many developers focusing on Kilimani, an upcoming office node with lower supply.
The report indicates a positive outlook for the land sector in Nairobi and the firm expects the land and real estate market witness price increments driven by the stable macroeconomic outlook and positive legal reforms.