Why two, three-bedroom units offer sweeter deal for property investors

Aerial view of Hurlingham which is a mixed use of office blocks and apartments. [Wilberforce Okwiri,Standard] Despite one-bedroom apartments renting so well, Unity Homes Executive Director Jason Horsey struggles to understand why these units are not selling as fast. For the projects his firm has done, he says two and three-bedroom homes happen to be the sweet spot. A one-bedroom unit goes for Sh6 million, two-bedroom units and three-bedroom units between Sh10 million to Sh12 million. A London townhouse whose asking price is Sh36 million. "Certainly, our sweet spot is the Sh10 to Sh15 million range," he says. He says when construction for one bedroom began, it was assumed that since the market is large, once you give a discount, sales will grow faster. "That was not our experience," he said during the International Housing Solutions (IHS) Affordable Housing Conference held in Nairobi. The firm finances affordable, green housing in Africa. "Our one-bedroom has been much more difficult to sell than our two-bedroom." Horsey says since two-bedroom units have become the developer's sweet spot, they are building more of them. He notes that 95 per cent of the buyers purchase the units primarily for investments. "And the one-bedroom rents extremely well, so there is a disconnect somewhere," he says. "The rentals should feed into the sales, but for some reason, they don't." Horsey's situation does mirror data from the Kenyan National Bureau of Statistics (KNBS), which shows that two-bedroom townhouses and three-bedroom bungalows sell faster. "Two-bedroom townhouses and three-bedroom bungalows took the least time (offtake) at six months and eight months, respectively. On the other hand, three and two-bedroom apartments took the longest time at 19 months and 18 months, respectively," says KNBS in their 2023/2024 Real Estate Survey Report. According to the report, it takes 13 months to sell off a one-bedroom or two-bedroom apartment or flat. A bedsitter or studio takes 10 months. For a developer, the faster a unit sells, the better, since they get to recoup their capital with profit, which they can re-invest in another project. However, for an investor who is buying in order to rent, the story is different as they want a project that has the highest yield. In this case, a one-bedroom provides this opportunity, which, as noted by Horsey, should translate to faster sales for such units. While KNBS data provides a guide on how the market is working, in some cases, it becomes trial and error - or an outlier model that ends up working for the developer. In the latest HassConsult study that looks at data from 2019 to date, the developer positions a one-bedroom apartment as the best bet for investors. It lists eight developments with units from studio to four-bedroom. "The initial property size was a significant driver in this, with smaller properties, typically with one-bedroom, securing the highest yields," reads The Kenyan Residential Property Market report by HassConsult. In one of the projects, Escada, a one-bedroom that was going for Sh4.5 million in 2019, now goes for Sh8 million, a capital gain of 78.0 per cent. This unit has a rental yield of 19 per cent when unfurnished and 25 per cent when furnished. This is higher than 13.0 per cent and 16.0 per cent for unfurnished and furnished, respectively, for a two-bedroom unit. Similarly, a one-bedroom in Enaki Town, a 22-acre resort project in Nyari, Kitisuru and Gigiri suburbs in Nairobi, that was Sh11 million in 2019, is now Sh16 million, a capital gain of 45.0 per cent with 12 per cent rental yield when unfurnished. A two-bedroom in the same area had a capital gain of 28.0 per cent, while a three-bedroom grew by 22.0 per cent with a rental yield of 11.0 and 10.0 per cent, respectively, for unfurnished units. The study released Tuesday says the market average for rental yields on all sizes of apartments from 2019 to 2025 was 7.28 per cent, and from 2023 to 2025 was 7.46 per cent. "By contrast, for one-bedroom properties in the five completed, off-plan developments, purchased in 2019 and 2020, the apartment rental yield ranged from 11 per cent to 19 per cent, averaging 14 per cent," the study says. It adds that the two-bedroom unfurnished yields in these five developments ranged from 10 per cent to 13 per cent, averaging 11.25 per cent. "For the largest apartment analysed, the unfurnished yields range was eight per cent to 10 per cent, averaging 9.33 per cent," the study says. For Director of Zima Homes Ettah Madete, her selling point has been in size - whether it is a studio, one-bedroom or two-bedroom - an outlier model. She has carved her niche in providing homeowners with compact apartments starting at 20 square metres that go for Sh2 million, 30 square metres for Sh3 million and 40 square metres for Sh4 million. "There is demand in the market for these kinds of apartments even if they are more compact than what is being offered (in the market)," she argues. This compact size has allowed her to keep the price range below Sh5 million, making it affordable for a majority of middle-class individuals or first-time home buyers and investors. In her projects in Wangige, Kiambu County, she says a studio fetches Sh18,000 as monthly rent, Sh25,000 for a one-bedroom and Sh35,000 for a two-bedroom. "The rental is actually upward trending, and the sale price has gone up a little bit," she says. Madete, like Horsey, says a majority buy for investment. Just 35 per cent of her customers buy as owner-occupiers. "Even through the payment plan process, some people switch between owner occupier to investment and some from investment to owner occupier," she says. While she insists that the apartments are compact - and not small - she adds that compensation for space has been done by providing balconies and courtyards. "The rental uptake from our project shows that people are willing to compromise on a few things because of quality design and space," she says.

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