How a weak shilling has made prime properties expensive

The weakened shilling also incentivises the hoarding of dollars, creating a self-perpetuating cycle. [iStockphoto] Sellers of prime properties in the country have opted to list their prices in foreign currencies to counter the depreciating shilling, Knight Frank reports. The property consultancy and advisory firm, however, notes that the depreciating shilling against the United States dollar and other global currencies has affected the valuation of the said properties. As a result, some buyers feel the quoted prices are way above the market rates. These high prices are also partly attributed to what Knight Frank describes as a severe lack of prime residential stock. "There is a severe lack of prime residential stock, a situation that has allowed landlords to demand higher rents," says the firm in its Kenya Market Update report for the second half of 2023. Knight Frank says Kenya, like the rest of the world, is under challenging economic conditions, resulting in a slowdown in the residential sales market. It documents that completing sale agreements is taking longer, a situation that is exacerbated by extended turnaround times in the Ministry of Lands, Housing, and Urban Development. This is as land stakeholders continue being frustrated with the title conversion process. "Additionally, the depreciation of the Kenyan shilling is impacting sellers' property valuations, with buyers feeling that quoted prices are beyond market value. This has led to further delays in finalising sales," the report reads in part. To mitigate against the declining Kenyan shilling, the report records that sellers are increasingly listing their properties in major global currencies, mainly USD, Euro, or the British Sterling Pound. "Moreover, sellers accepting payments in major world currencies have been able to secure buyer-friendly deals, as sellers prefer such currencies to offset potential losses caused by the Kenyan shilling's diminishing purchasing power against these currencies," the report says. However, due to the exclusivity of the prime residential market, and its tendency to often withstand market shocks better than most real estate classes, Knight Frank projects that this sub-sector shall continue to remain vibrant and perform well. The prime residential market in Kenya is largely driven by expatriates and high-net-worth individuals. The firm reports that depending on the location, apartment features, and exclusivity of the neighbourhood, prime monthly rents for three-bedroom apartments range between Sh140,000 and Sh220,000. Four and five-bedroom houses tend to be in the range of Sh300,000 and Sh500,000. "The prime residential sales market registered a 0.3 per cent appreciation over the review period, and a 2.45 per cent improvement over the last 12 months," the report says. "Though positive, the rate of appreciation has declined from an annual appreciation rate of 4.14 per cent registered in 2022." The marginal appreciation in value, the report says, is largely attributed to the depreciation of the Kenyan shilling, a calm business environment as the country got over the election period, and post-election jitters that occurred in H1 2023. "The prime residential rental market continued its upward trend and registered an annual appreciation of 5.85 per cent to the year ended 2023. This was mainly attributed to the appreciation of the dollar against the Kenya shilling that implied a net increase in disposable income for expatriates implying increased demand," it adds.

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