The big housing lie that left Kenyans with homes and land they can’t sell
SEE ALSO :Birds of paradiseNotices for auction have consistently risen week after week in the second half of last year to date. Some of the properties have never been occupied, yet the developers might have sought financing from banks to build in the hope of repaying after selling to the supposed hungry market. Players in the property market could be the biggest reason for the current crash after selling a fictitious narrative about unending surge on prices in the last decade. It did not help that they were the main source of all the information about where the market was going, yet they would inadvertently be the winners in the self-fulfilling prophecy. The narrative
SEE ALSO :How to switch up a boring houseJared Osoro, the Director of Research and Policy at the Kenya Bankers Association, says the speculative sentiment helped push up prices. He, however, indicated that the slowdown in the wider economy had helped complicate matters. “I do not agree with the conspiracy theory of a rigged market, but yes, there was major speculative pressures,” he said. In speculation, players would buy in the hope of quickly exiting, and if that is replayed over and over, the illusion of demand is created. Unrelated parties, including the media and its personalities, have a central role in enabling the narrative gain traction. Mr Osoro added that the property industry is capital intensive, hence tends to have a longer lag compared to other sectors, either in rising or dipping. Essentially, the current stagnation of the property market is a result of events of the previous years. Price of land has been singled out as the single biggest driver of the eventual cost of construction but no one has ever explained how its value rose exponentially. In a case that would help illustrate that the peddled values were not necessarily true, Kenya Railways Retirement Scheme only realised Sh260 million from selling an acre in Nairobi’s Upper Hill. At the time, however, the supposed value in the pricey district, as indicated by a Hass Consult - a commission agent, was Sh495 million. Further, incomes for the average Kenyans did not suddenly rise to help reconcile how a resource that they have all along lived on turned into a gem. On the contrary, official statistics from the government have confirmed that after adjusting for inflation, workers are earning worse today than they did a decade ago. In 2008, the real monthly average for salaried workers was Sh32,832, which is higher than the latest available for 2018, which is Sh31,340. Adjusting for inflation is a global practice in making comparisons, meaning the nominal pay increases could only help workers feel good while in fact they are worse off. Many transactions on property have been reported involving wealthy Somalis seeking to invest in Kenya after fleeing civil war back home. The source of their cash has been questioned, especially considering that most purchases were outside the banking system. But could the reverberation with which their money landed be felt as far as Nanyuki, a four-hour drive from Nairobi’s South C, where they took over? It is highly unlikely. However, property around the quiet town, where the British army chose to set up a training base, and many other urban areas, have experienced huge demand for property. Property in far off areas was marketed as the next frontier in the industry for retirement or holiday homes. In the bigger towns, especially in Nairobi, a housing shortage was in the millions following years of under-investment, and that there was a ready market to rent or outright purchase. Part of the proposition remains true on one hand, and on the other, the economy has neither created as many jobs or wealth. David Masika, the chairman of Lloyd Masika, a property valuation and management firm, said the current situation was a market correction triggered by the entry of foreign mega developers. He explained that there had to be a willing buyer to make a purchase to conclude any transaction and after paying for what they believed was value. “A seller does not create the value in anything, but the worth is determined by what the buyer will ultimately pay,” Masika said. He attributed the surge on property prices to the entry of big institutions such as World Bank, which acquired one of the commercial properties built by Ambani in Upper Hill, Nairobi. User change from residential to commercial, played a significant role in raising property values in other nodes, including Westlands and parts of Gigiri. “It was an endorsement of the area when you have such a buyer who everyone wants to be around,” Masika said. A mortgage director in one of the large banks said the accumulated housing shortage going back to the 1990s is the reason prices soared sharply, only for the tough economic environment since 2017 to disrupt the growth.
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