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House prices drop as oversupply hits market

By Moses Michira | Jul 26th 2016 | 2 min read
By Moses Michira | July 26th 2016

Investors in several neighbourhoods in Nairobi are reeling from a slump in home prices and rent as excess supply bites.

Selling prices in Kilimani have dropped more than 5 per cent since last June to lead in the slump that has also been witnessed in Donholm, Eastleigh and Ridgeways, according to findings presented by real estate consultancy HassConsult.

A dip in prices is a reflection of slowing demand, further compounding concerns that developers who borrowed to fund for-sale projects could be coming under distress.

Rental prices in the high-end Westlands district are down 3.4 per cent, while Karen is reported as the best-performing estate for landlords.

“We have seen oversupply in these areas,” head of the research Sakina Hassanali said yesterday, referring to the middle-income neighbourhoods that have been worst hit.

The supply of three-bedroom apartments has stayed ahead of demand, translating to low occupancy levels.

Bad loans

Mlolongo, a satellite town along Mombasa Road, has also taken a beating from heavy traffic on the highway to reverse the price hikes of the past. Land prices have fallen by a 10th in the three months to June, while home prices fell 1.2 per cent over this period.

Implications of the supply-demand showdown have already been captured by the Central Bank of Kenya (CBK), which reported bad loans in the real estate sector had jumped by nearly half in the three months ending March.

“This is attributable to the slow uptake of housing units,” CBK said in its latest quarterly report.

One of the reasons for the slowing uptake is that home sellers may have priced themselves out of the market. The average closing price for a residence in Nairobi has jumped seven-fold in 10 years, while rent has risen just three-and-half times, according to survey.

A tool used to check home prices against the rent they can generate puts Nairobi significantly ahead of most cities in the world. Investors in property in South Africa can receive rent equal to the value of their homes in 9.79 years, compared to 15 years in the Kenyan capital, according to international research firm, Numbeo.

The pricing disconnect could be evidence that home prices are overly inflated, a situation made worse by the swelling land prices.

Land prices have soared more than six times in 10 years in Kilimani, where an acre has a going rate of Sh430 million. Average home prices in Karen, popular with politicians and business leaders, have risen nearly 17 per cent since last June, to stay ahead of land prices that rose by a 10th.

Infrastructure developments, specifically improvements on the road network around the city, have also helped in opening up satellite towns and raising the values of land and homes, which could diffuse the rapid price increments in Nairobi.

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