Tough economic times push potential buyers to rent

The market is showing a skewed preference for rental properties in the latest indices by a real estate firm owing to the challenging economic times that have depressed buyers’ earnings.

The indices which cover the third quarter of 2023 revealed a drop in average sales prices of 1.1 per cent in the quarter, resulting in a 3.7 per cent drop in the year to September 2023.

This drop affected prices of detached and semi-detached houses which fell by 1.7 per cent and 0.9 per cent in the quarter, while apartments recorded a 1.5 per cent growth in prices as buyers look for value in a challenging economy.

The numbers show that the satellite town of Athi River in Machakos County had the highest quarterly increase in house prices going up 3.5 per cent, with Runda recording the lowest, a drop of 3.5 per cent.

Annually, Ngong town, Kajiado County, had the highest increase (+14.7 per cent) while Upper Hill apartments had the lowest in the period under review (-12.7 per cent).

Rental prices grew the most in Westlands, Nairobi City County, by 3.4 per cent during the quarter under review with the lowest growth being recorded in Kiambu (-1.4 per cent).

The lowest annual increase in rental price was recorded in Upper Hill (-10.9 per cent) while the highest was in Ongata Rongai (+16.0 per cent).

The firm cites that higher interest rates have impacted market liquidity negatively, affecting demand for own-to-occupy real estate during the quarter. This largely constituted detached and semi-detached homes.

“Banks are also exercising stringent lending, mitigating the risk of loan defaults in a tightening economy that is characterised by inflation and higher taxation,” reads the HassConsult analysis of the quarter.

However, the rental market is looking up and experienced a price growth of 0.4 per cent on average over the quarter. This was backed by the outperformance of apartments compared to detached and semi-detached units.

“Apartment rental prices grew 3.2 per cent in the quarter, with affordability a key consideration, while prices for detached and semi-detached houses fell 0.7 per cent and 0.4 per cent respectively,” the analysis adds.

HassConsult opines that apartments therefore continue to offer the best value for money for investors, both in rental yields and capital gains.

“The apartment market is seeing a price resurgence backed by renewed demand for inflation-beating investment assets in a period where the Kenya shilling is losing value,” said Head of Development, Consulting and Research at Hass Consult Sakina Hassanali.

The analysis documents that suburbs such as Riverside, Lang’ata and Westlands, which are close to the city’s main economic hubs have performed best in rental price growth of between 1.5 per cent and -3.4 per cent.

Among satellite towns, those with the best access infrastructure (Thika, Syokimau, Ngong, Limuru, Juja) continue to outperform the market average. Compared to other asset classes, the analysis adds, overall property rental returns have outperformed the equities market on an annual basis, but trail the returns on offer on Treasury bills.

“Apartment returns of 5.9 per cent in the year to September are however higher than those in savings, which averaged 4.05 per cent by the end of August,” added Ms Hassanali.

The indices also show Ongata Rongai to have recorded the highest increase in land prices among satellite towns.

Land prices in Ongata Rongai, Kajiado County went up 8.19 per cent compared to the previous quarter with Limuru, Kiambu County dropping 3.11 per cent.

Langata, in Nairobi County, had the highest increase in the quarter of 1.53 per cent with Kileleshwa recording the lowest in the period (-0.62 per cent).

Prices in Nairobi’s suburbs increased by 0.4 per cent in the quarter and by 0.8 per cent in the year.

“Land in the city showed signs of price recovery with only three out of the 18 suburbs witnessing a price fall in quarter three, compared to 14 in the previous quarter,” the analysis reads. “Recovery of land prices is heavily attributed to the resurgence of development activity post Covid.”

Land prices in Nairobi’s satellite towns, however, were quicker to rise, up 2.7 per cent in the third quarter of 2023 and 6.3 per cent annually. “The growth in price of land in satellite towns was almost seven-fold that of land in the city, bolstered by improved infrastructure and affordability opening it up to a wider demand base,” it adds.