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Land prices in Nairobi and the surrounding counties of Kiambu, Kajiado and Machakos have increased by the largest margin in nearly a decade on the back of investors seeking space to build apartments amid concerns over a glut.
HassConsult, which conducts a quarterly property pricing index in Kenya, said on Tuesday that land prices in the capital increased 8.2 percent in the year to September to an average of Sh210.7 million an acre, the fastest expansion since 2015.
Land prices rose fastest in the satellite towns, driven by Kenya’s growing middle class who cannot afford property in the capital.
The average prices of land in areas such as Athi River, Juja, Mlolongo, Limuru and Ngong increased 12.6 percent to Sh30.4 million per acre, the highest growth seen since September 2016.
Investors who had opted to freeze investments in land in the wake of the Covid-19 economic crisis appear to have made a big return to real estate, which emerged as an alternative to bonds amid a sluggish stock market.
Home prices rose by an average of 8.5 percent in the year to September, but the cost of apartments in high-end estates marked a rare fall, with flats in Muthangari dropping 7.3 percent, Upper Hill 9.3 percent, Westlands 4.2 percent, Riverside 4.1 percent and Kilimani a minimal 1.0 percent.
Kileleshwa and Parklands bucked the trend with price gains of 7.6 percent and 6.0 percent respectively, underlining their status as pockets of opportunity for apartment developers.
The surge in land prices across the city is the product of developers seeking space to set up apartments in areas such as Kileleshwa and Parklands, where a relaxation of zoning laws has seen the multi-dweller units progressively replace single-occupier property.
In the satellite towns, price growth has been driven by a mix of friendlier pricing and infrastructure upgrades, which has attracted both commercial developers and individuals looking to build their own homes.
Prices in the towns are also influenced by availability of amenities such as schools, malls and hospitals.
Friendlier zoning laws have also prompted subdivision of land to smaller units of up to an eighth of an acre, putting land ownership within reach of more middle-class Kenyans.
“The price growth was supported by rising land demand for new developments, as the real estate sector continued its recovery from a prolonged slump,” said HassConsult head of development consulting and research Sakina Hassanali.
“In the city’s suburbs, land prices have now gone up by more than one percent in each of the last four quarters, breaking the prior run of 26 straight periods of sub-one percent growth.”
The sharpest growth in the capital was seen in Spring Valley at 13.5 percent to Sh270 million per acre, Lavington at 12.6 percent to Sh255.3 million, Muthaiga and Ridgeways at 9.2 percent to Sh234.3 million and Sh92 million respectively, and Langata at 8.4 percent to Sh85.5 million.
In the satellite towns, Mlolongo led in annual growth at 18.5 percent to Sh43.2 million per acre, followed by Syokimau with a growth of 18.1 percent to Sh36.6 million, Limuru’s 18 percent to Sh23.9 million, Ruiru at 16.8 percent to Sh34.5 million and Kiserian at 16.6 percent to Sh11.8 million.
The rush for land to set up apartments has, however, started to have a negative effect on prices of the flats, signalling a looming imbalance in supply and demand and putting developers who are flocking to the segment at risk of holding dead stock.
The HassConsult data shows that apartments account for the bulk of available units for sale (67.7 percent) and renting (62.8 percent) in Nairobi, up from 55 percent five years ago.
The increased supply has been driven by suburbs that are near the city’s main economic zones such as Westlands, Upper Hill and Mombasa Road.
This general decline in prices of apartments in high-end estates was in contrast to those of detached and semi-detached units, where only Gigiri recorded negative movement or a fall of 2.3 percent.
The standalone house segment saw estates such as Ridgeways and Loresho report double-digit price growth, with increases of 13.5 percent and Loresho 12.1 percent respectively.
Detached homes recorded growth of 9.0 percent in Nyari and 7.9 percent in Langata.
“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,” said Ms Hassanali.
Rental prices for apartments held up better compared to sales, with Westlands, Parklands, Muthangari and Kileleshwa reporting double-digit gains of between 10 and 14.2 percent.
This contrast between buying and rental prices shows that the market is favouring developers who are putting up units to rentals compared to sales.
For buyers who take advantage of the falling sale prices, this points to an improved rental yield should they opt to let out the units after purchase.
Housing has been one of Kenya’s fastest-growing sectors over the past decade to 2020, when Covid-19 hit, fuelled by a growing middle class, with returns from real estate outpacing equities and government securities.
This fuelled a boom in land, whose prices increased nearly four-fold in Nairobi and satellite towns like Kiambu, Ongata Rongai and Kitengela.
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