Prices up as buyers get over capital gains tax fears

The March-to-June period saw a number of prospective buyers return to the market, some of whom had previously put their plans on hold due to the uncertainty over the implementation of capital gains tax (CGT). This is according to the Knight Frank Prime Global Cities Index (PGCI).

A recent disclosure by the Ministry of Lands confirmed intricacies around the collection of the CGT for property transactions alongside stamp duty.

At the same time, asking prices for luxury residential properties in Nairobi edged up by 0.9 per cent in the second quarter of the year.  This is a notable turnaround from the previous quarter when asking prices fell by one per cent.

The rebound in asking prices reflects various factors, including a growing number of inquiries driven by rising investor confidence as well as developments in the regulatory environment.

A view of the MK Two residential development in Karen. Index shows prices for luxury residential properties in Nairobi edged up. (PHOTO: COURTESY / STANDARD)

“The impact of capital gains tax put off buyers earlier in the year, but they have since carried on. It’s not a dramatic change, but it’s possible that some of the sales that could have happened in the first quarter were realised in the second quarter and could perhaps continue to flow into the current quarter,” said Ben Woodhams, Knight Frank Kenya Managing Director.

“The general feeling is that the market is moving upward. Buyers are becoming more discerning and selective, and sellers have started responding by installing better quality finishes because of increased competition,” said Woodhams.

In addition, the impact of the recent Global Entrepreneurship Summit 2015 – which was co-hosted in Nairobi by Kenya and the United States of America – is yet to fully permeate through the economy, considering that several key investment deals were sealed during the conference.

Global events

Kenya will host several other major global events later in the year, including the tenth WTO Ministerial Conference in December and, reportedly, a papal visit in November.

“At Knight Frank, we continue to receive interest from international investors keen on coming to Nairobi. Following Obama’s visit, we will definitely see confidence from international investors increase and these visits are huge boosts as far as foreign direct investments are concerned,” said the Knight Frank MD.

It is also anticipated that the significantly weaker shilling will draw more interest from international investors and Kenyans in the diaspora, as well as redirecting some of the offshore Kenyan investments back into the country’s real estate sector.

“The weaker shilling – mostly due to the strengthening of the dollar and the pound – is helping foreign investments in Kenya look more attractive. If I am earning dollars and am sitting somewhere in New York or London, the change in the value of the shilling is a premium on its own and might just tempt me to buy an apartment say in Kilimani,” said Woodhams.

The improvement in asking prices in Nairobi saw the city climb up six ranks to 20th position in the Prime Global Cities Index. The PGCI, which tracks luxury residential price movements across 35 cities worldwide, has been rising for 22 consecutive quarters, but the pace of growth almost halved to 2.5 per cent in the year up to to June.

Closer analysis shows that whilst more cities are recording positive annual price growth, the number of markets performing exceptionally well has declined.