Apartment prices in Nairobi drop as oversupply depresses market

Apartments in Nairobi suburbs have recorded a drop in prices over the last 12 months with the latest HassConsult property index showing Riverside having the highest contraction in the third quarter of the year. However owners of houses in the suburban areas have seen increased value of their property as Ridgeways recorded the highest shift in value over the last 12 months and the third quarter of the year as well. But when it comes to rental prices, it is the apartment owners who are laughing all the way to the bank as a good number of the suburb areas recorded a double digit growth over the last 12 months. These are Kileleshwa 14.2 per cent, Muthangari 11.8 per cent, Parklands 10.5 per cent, and Westlands 10.0 per cent. For houses, Westlands is the only suburb that recorded a double digit growth in rental prices over the 12 months period at 11.3 per cent. During the third quarter, the most increase in rental prices for houses in the suburbs was in Karen at 1.3 per cent compared to 2.0 per cent recorded for apartments which was the case in Kileleshwa and Parklands. When it comes to apartments for sale, Westlands had the biggest dip in the quarter at 1.5 per cent with Parklands and Langata being the only suburb area with a marginally positive growth in (apartment) value of 0.8 and 0.4 per cent respectively. Houses in Gigiri dropped in value by 2.0 per cent, Kitisuru by 1.2 per cent, Runda by 0.2 per cent and Kilimani by 0.1 per cent. In it's third quarter release, Hass Consult notes that rental prices are falling due to a tough economy even as overall property selling prices remained steady. It adds that sale prices across property in Nairobi's suburbs and satellite towns grew by 0.7 per cent, compared to a 1.0 per cent growth in quarter two, while asking rental prices contracted by 0.6 percent, having been flat in the previous period. HassConsult argues that the protests that affected the country during the year in June and July saw cautious pricing in a period of uncertainty. This dampened the market that was coming off a period of strong price growth in the last quarter of 2023 and first half of 2024. "The property rental market eased after a strong period of growth between October 2023 and June 2024, when monthly rental price growth averaged at three percent. The market aligned with prevailing tough economic conditions, characterised by protests in June and July," says Ms Sakina Hassanali, Head of Development Consulting and Research at HassConsult. The index adds that sales prices for all property in the Nairobi suburbs meanwhile remained unchanged at -0.9 percent in the quarter, while satellite towns witnessed a decline of 0.2 per cent, compared to a growth of 2.1 percent in the second quarter. "Apartments in both city suburbs and satellite towns lagged-behind standalone units in price appreciation," says HassConsult adding that seven out of nine suburbs with apartments reported negative price movement, as did six out of nine satellite towns. Apartments account for the bulk of available units for sale (67.7 percent) and letting (62.8 percent) in Nairobi. "The apartment segment saw some price correction in the period due to increased supply of units, which now account for two thirds of all property available for sale in the market," adds Ms Hassanali. She notes that the price performance at the end of the quarter reflected the general slowdown in the real estate sector coming into the quarter. This is as official government data shows that the construction sector gross domestic product contribution contracted by 2.9 per cent in quarter two of 2024, compared to a growth of 2.7 per cent in the corresponding period in 2023. "With the reduction in inflation and expected fall in interest rates however, both the rental and sales segments are looking at prospects of recovery in coming months as consumer purchasing power improves," the real estate firm states. The firm also shows that land prices in Nairobi City's suburbs rose by 1.6 per cent during the quarter, while prices in Nairobi's satellite towns went up by 3.02 percent. Interestingly, the rise in land prices was largely caused by increased developments that favour high rise buildings that host apartments which whose value is slowing down due to price correction and an oversupply. HassConsult notes that in the city's suburbs, land prices have now gone up by more than one per cent, in each of the last four quarters, breaking the prior run of 26 straight periods of sub-one percent growth. Parklands, which has had a surge of development activity - for both commercial and residential developments in the last two years, led the market with land price increases of 3.4 per cent to average sh434.2 million per acre. Langata and Kileleshwa also made a strong showing with gains of 2.9 per cent and 2.8 per cent respectively, indicating that demand is shifting back to areas that can support multi dweller units in a market that still remains price sensitive in a tough economy. "The leading suburbs in quarterly land price growth have emerged as the city's hotspots for apartment and mixed-use developments, hence the demand driven price increase," notes Ms Sakina Hassanali. In Nairobi's satellite towns, Mlolongo (6.6 percent), Thika (6.3 per cent) and Kiserian (4.7 per cent), recorded impressive price growth in the second quarter, driven by a mix of attractive pricing levels and upcoming infrastructure development. Mlolongo continued to enjoy the benefit of easier access to the city via the Nairobi Expressway, with the areas mix of residential and land industrial developments helping sustain demand for land. In Thika, the firm says the Kiambu County government's recent announcement of a new masterplan to transform the town into an industrial smart-city, has seen developers race to take up land in anticipation of a potential jump in demand for housing and commercial outlets in the area. The county plan envisages additional roads that will open up the outlying areas of Thika for commercial development, creating new jobs that will attract demand for residential units. "Prices are more dynamic in satellite towns compared to suburbs, due to evolving development plans and impact of new infrastructure on buyer behavior," she says.

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