Real estate companies feel the heat of economic downturn

By Morris Aron

Landlords in Kenya have been hit by rent stagnation as tenants adjust their lifestyles by moving to cheaper houses to survive the harsh economic times.

Property managers say the trend has largely affected the high-end rental market in Nairobi and Mombasa, and is slowly gathering pace into the middle-income segment across major towns.

"Tenants are looking for ways to weather the economic downturn by spending less on housing and diverting money to other basic needs such as food and water," said Mr Reginald Okumu of Arc Consultants — a property firm.

Property experts say in areas where the trend is yet to pick up, rental prices have stagnated, while vacancy levels are in the rise as less people move to rent property especially in the upper income areas.

The unfolding scenario, which started late last year is also seeing an increasing number of the middle class default on their rents as food and transport costs take a larger share of income.

The development is a reverse of a trend that was witnessed three years ago when the economy was at its best and everything looked up. A good number of the middle class moved to the upper middle-income neighborhoods.

Harsh economic conditions characterised by high food prices is pushing tenants back to neighbourhoods they migrated from barely three years ago, as many adjust to high cost of living.

"We are witnessing a trend where tenants are moving back to less priced housing estates to mitigate on rent costs," said Mr Justus Munene of Dayton Valuers — a property firm.

The trend started late last year when the number of houses being bought dropped significantly due to a combined effect of post-election violence, the global credit crunch and an economy in recession spells doom for the real estate business.

The latest report by Knight Frank — a global real estate company—paints a gloom picture.

The report says despite the residential market witnessing significant developments in the recent past, there are signs that combined effects of global credit crunch, local economy in recession and high food prices have begun to reduce the demand for residential property — both in the rental and the sales market.

The emerging trend is hitting property companies hard, with reports of mass retrenchment of lower cadre staff such as cleaners and caretakers, as real estate companies move to cut on costs.

A known firm that manages property in the upper middle income in Nairobi, for example, recently retrenched all its cleaners and caretakers only to replace them with new employees who are now earning a paltry Sh2,000 — less than half of what the previous lot had been earning.

Real estate companies have also been forced to diversify from property management and letting services — where they earn commissions for the properties managed, let or sold in preference to valuation and consultancy services, whose income are much more predictable.

"The good thing with real estate is that apart from property management services there are other areas where one can diversify into such as valuation services to banks," said Okumu.

 

 

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