Kenya Real Estate Investment Relation to Political Climate

Kenya continues to witness an upsurge in real estate investment. The quest for Kenyans to own homes as opposed to renting, government investments, rural urban migration and increased diaspora remittances are some of the factors that have largely contributed to this growth in the real estate sector. Like any other investment however, real estate investment in Kenya is affected by issues that include; change in government policies, social instability, economic diversity, legal considerations such as property ownership rights and investment restrictions, volatility of the Kenya shilling against foreign currencies, and lastly political environment.

Kenya’s political environment notably after the disputed 2007 general elections was very hostile, causing a great decline in real estate investment. Investors in the most affected areas of Nakuru and Kisumu lost property as an aftermath of the post-election instability. The immediate effect of a hostile political environment is that the investors go into negative cash flow for a period of time that is not sustainable, often forcing investors /home owners to resell the property at a loss or go into insolvency. Political instability causes rising inflation due to rise in prices of consumable goods and products which decreases the monthly disposable income. This all leads to a rising household debt-to-disposable-income ratio and ultimately affecting the power to invest in property.

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Whenever the political situation heightens, both local and foreign investors who inject income into the economy in form of property investment shy away from the market. The robust growth of the property sector over the year 2007 is the primary reason as to why Nairobi was regarded as being a possible site of property investment by foreign investors. Many investors however pulled out of the Kenyan property market in 2008 following political instability.

Kenya has since recovered from the effect of the political economic meltdown and the prospects in property market are attracting a number of investors, both local and foreign.  Nakuru which is one of the towns that was greatly affected by the political instability was rated the fastest developing town in sub-Saharan Africa in 2011 by the UN habitat. Research indicates that prices for commercial space in Nakuru have more than doubled in the last four years .The high demand has been triggered by large corporate institutions such as banks, supermarkets, universities and colleges in town which normally require huge space.

With the next General-Election coming up in 2017, any heightened political temperature may affect project investments currently in the pipeline. The Real Estate Developers may hold back resources if their investment confidence becomes threatened by political uncertainty. Likewise, goodwill and stability in the Kenya political arena would likely have a positive impact in the investment market, which would maintain the upward investment appetite currently being experienced in the Real Estate Market.

With the growth of technology and particularly social media, the political environment of every location in the country is now visible and information is immediate to investors, creating heightened awareness that can influence where people choose to live and invest, and where foreign investors prefer to acquire property.