Resilient Nairobi is down but not out

An Aerial View of Nairobi City taken on 17th February 2015. [PHOTO;WILBERFORCE OKWIRI/STANDARD]

Nairobi, Kenya: High net worth property investors are not keen to put their money in Kenya’s real estate market, a new report shows.

According to the just-released World Wealth Report 2015, wealthy individuals have given the country a wide berth, instead preferring the world’s financial hotspots, with London and New York taking the first two slots out of 40 top business hubs. They are followed by Hong Kong, Singapore and Shanghai, respectively.

Kenya has in the last few years been touted as a top contender with regard to high net worth property investments.

The report, released by real estate firm Knight Frank, defines an ultra high net worth individual (UHNWI) as any person with a net worth of over $30 million (Sh2.79 billion).

By the end of 2014, the world had only 172,850 such individuals(in Kenya there are 115) holding a total of $20.8 trillion or Sh1.9 quadrillion. With Kenya’s annual budget of a trillion shillings, this amount can run our country for 1,900 years.

Cities that made cut

Only two African cities — Johannesburg and Cape Town — both in South Africa, mattered in this category. They took positions 28 and 36, respectively, as far as high-end residential investments are concerned.

Property prices in the two South African cities were bolstered by the 2010 World Cup games that opened them to the rest of the world.

Prior to the games, both Johannesburg and Cape Town saw unprecedented infrastructure developments such as park development, roads and an upgraded transport system. Since then, a typical 700-square-foot apartment has been going for $200,000 (Sh18.2 million).

“Focusing purely on the population of wealthy residents, our data confirms that London remains the single biggest centre for global UHNWIs, followed by Tokyo, Singapore and New York. Ten years and the expectation is that London will retain its top spot,” says the report.

While the aforementioned cities have seen an exponential economic growth for decades, the same cannot be said of Ivory Coast, a country that has been embroiled in political turmoil in the past, but will see the largest increase in the richest individuals in Africa in the next decade.

 

This may come as a shocker to many owing to the fact that Kenya has of late seen high profile developments meant to attract the rich locally and beyond.

These include Vipingo Ridge, English Point Marina and Ocean Seven at the Coast; Thika Greens, Migaa and Mount Kenya Holiday Homes in Central Kenya; Longonot Gate and Aberdare Golf Resort in the Rift Valley as well as upcoming projects in the lakeside city of Kisumu.

However, Elly Ongoma, the marketing consultant for Victoria Gardens in Kisumu says we should not over-rely on foreigners whose decision to invest is informed by personal reasons, such as the need for luxurious second homes, and not a desire to grow the local economy.

“Fifty per cent of our project in Kisumu was taken up by Kenyans in the diaspora. The rest was snapped up by residents. We predict this to be the same in our upcoming project in Mambrui, near Malindi,” says Ongoma.

In addition, Nairobi ranks 55 out of 100 as far as property price changes in 2014 are concerned. Knight Frank’s newly enlarged Prime International Residential Index (PIRI) contains performance data for the world’s key luxury cities and second-home markets.

In this year’s report, Knight Frank has included a category of future cities where the world’s rich are training their gaze on. Even here, Kenya is conspicuously absent. Surprisingly, Addis Ababa, the capital of Kenya’s northern neighbour, Ethiopia, is among the world’s cities of the future. According to the report, Ethiopia is the fastest growing economy on the continent. It has doubled its high net worth individuals or dollar billionaires since 2007.

Any visitor to Addis Ababa will not fail to see the numerous cranes dominating the skyline, an indication of the city’s booming construction industry. Add the fact that Ethiopia is home to what is being billed as the largest power-generating project on the continent. “The Renaissance Dam under construction on the Blue Nile is Africa’s largest hydroelectric scheme and could provide energy security – a vital component for economic development,” says the report.

Addis Ababa

Ben Woodhams, Knight Frank’s Nairobi office managing director, says the emergence of Addis Ababa as the city to watch should come as a wakeup call for Nairobi, a city that has been on the international radar for the last decade due to vibrant real estate developments

“Ethiopia is a country with a high population and has been witnessing a boom in construction. Nairobi should up its game, otherwise there are others waiting on the periphery,” says Woodhams.

But don’t rule out the city in the sun just yet. Information submitted by Knight Frank’s Head of Agency in Nairobi, Anthony Havelock, for the global report says Nairobi is emerging as the preferred location for Grade A offices that are proving popular with multinationals.

 

Havelock states that Nairobi will see the opening of around 1.8 million square feet of world class shopping malls this year, with new international retailers committing to the region for the first time.

Paradoxically, Nairobi is gaining from the misfortunes of cities such as Cairo that has been embroiled in political turmoil for the last four years.

And as the South African cities appeal to the world’s rich as destinations for residential investments, the business community seems to favour Nairobi in terms of penetrating East and Central Africa.

“The decline of Cairo’s commercial influence at the northern end of Africa, and the realisation by international businesses that they cannot run the entire continent from Johannesburg at the southern tip, has created a vacuum that Nairobi is eagerly filling. Local developers have responded by building Grade A quality office space that is attracting top-quality tenants paying dollar-denominated rents,” states Havelock in the report.

According to Havelock, the recently-discovered oil and gas deposits are creating an additional buzz in an economy that has seen almost all sectors experiencing growth. This in turn attracts global investors who require top notch offices.