Kenya property boom draws in foreign money

By Helen Nyambura-Mwaura

Kenyans have got property buying fever in a big way, and with more gains predicted, foreign money is also boosting the country’s hottest investment sector.

Kenya’s position as a regional business hub, and its improving governance are among the main causes. Explosive population growth and a rising middle class also mean demand is strong after decades of underinvestment in housing.

Analysts say the boom has further to run, as private sector investment flows are rising significantly for all sectors of the economy, not just real estate and construction.

The recent peaceful referendum on a new constitution has also diminished political risk in the country’s economy, which was hard hit by post-election violence in 2008.

The growth in construction came second only to tourism last year. By the second quarter of this year, construction was the fastest growing sector and, combined with real estate, contributed 11.0 per cent of gross domestic product.

From Nairobi to sleepy rural towns, land values are soaring and construction projects mushrooming. Prices started rising in 2003 after a new Government came to power promising change following a 24-year rule characterised by a poor investment climate.

But the feverish rise in house and land prices have some Kenyans worried a bubble may be forming, although analysts say there is plenty of room for the upward momentum.

No bubble

"There is nothing like a bubble in this market, and it won’t happen for years," said Frank Ireri, managing director at mortgage firm, Housing Finance.

Kenya’s only property index, conducted by real estate agency HassConsult, shows prices untouched by the global crisis are set to rise slowly, as the economy recovers.

Kenya’s economic growth is seen accelerating by at least 4.5 per cent this year, from 2.6 per cent last year.

The last time real estate prices rose dramatically was in 1994-996, as Kenya’s economy emerged from a period of high inflation, according to land economist Samuel Mwangi.

The price of an acre of land in Nairobi’s Upperhill business district ballooned to Sh50 million shillings from Sh8 million in 1996, and held at that level until 2003. Today, an acre is priced at Sh120 million.

Apartments in Nairobi’s middle-income areas now cost two to three times what they did in 2003, and analysts say most of the sales are on cash basis, rarely mortgaged.

—Reuters