A look at Kenya Real estate Pricing Strategies for Property Sales, Letting, and Agency for 2021, and how to position yourself as an Investor in Kenya Real Estate Market.

Amidst falling demand caused by constrained credit access and the continued oversupply of real estate products, the Kenya real estate market is expected to remain a buyers’ market in 2021, as seller’s competition remains strong. As the economy recovers, real estate inventory is expected to make a slow but steady comeback increasing the real estate competition, and therefore the need to understand the pricing trends, marketing strategies, and real estate disposal strategies for Kenya real estate market.

In real estate pricing, real estate comes with unique features, such as a fixed locational attribute, a long product life-cycle, number of rooms, floor level, finishes, and the general design, which is important to consider in developing a pricing strategy. Nevertheless, in the recent past, the price trends in the Kenya real estate market have been highly dependent on the supply and demand trends, which has also affected the take-up rate.

According to a property index by HassConsult, the residential sale prices remained stagnant in 2020, dropping by 1.2 percent from 2019. The stagnant growth in residential prices, which has been experienced over the years, was attributed to apartments that fell an average of 4.6 percent over the year while both detached and semi-detached houses retained positive growth, driven by the need for more space. On the other hand, the residential rental prices accelerated by 1.1 percent in the quarter. Nevertheless, apartment’s rents quarter-on-quarter fall came in at 1.24 percent in the same period, with apartments in Kilimani and Kileleshwa showing the strongest fall in quarterly rents at 4.0 percent and 2.6 percent, respectively. The quarter on quarter residential rental price growth in 2020 was led strongly by the 7.3 rise in rental prices for detached houses.

The following graph shows the quarter on quarter price trends in the Kenya real estate market, which has been stagnant over time.

Source: HassConsult Property Index

The above-discussed price trends call for an investor to understand the market, as the Kenya real estate market is vibrant, and the pricing strategies used are based on the market conditions at the time. The following pricing strategies can be employed by real estate investors to position themselves in a competitive market that is expected in 2021:

i.) Understand the market

Pricing in the Kenyan real estate market is determined by the supply and demand of real estate. That’s why an investor needs to determine whether his/her property is experiencing a buyer’s or a seller’s market.

• A buyer’s market refers to a situation in which supply exceeds demand, giving buyers an advantage over sellers in price negotiations. In a buyers’ market, competition in the marketplace exists between sellers, who often must engage in a price war to entice buyers to make offers on their homes. In such a market, which is the current situation with offices and apartments in Kenya, investors and developers are expected to offer an outstanding property and drop their asking prices to gain an advantage. Furthermore, they are expected to be willing to negotiate offers to prevent buyers from walking away.

• On the other hand, there are many interested buyers in a seller’s market, but the real estate inventory is low and hence, sellers are at an advantage.

ii.) Set your price based on an analysis of comparable sales of similar properties

In many cases, real estate buyers will use the first price that they see for comparable properties as an anchor price. Therefore, an investor or a developer could use the comparative market analysis, which puts an investor’s or a developer’s property side-by-side against other properties similar to theirs in the same location, with the same design, size, and finishes. Comparative market analysis pricing strategy helps to size up the competition and nail down a price range, from which an investor could add or subtract value based on their property’s unique positioning, value-added features, and upgrades.

iii.) Understand the target market

Understanding the target market enables an investor or a developer to know what their target clients are willing to spend and their average budgets. Setting the price as per the target market’s budget positions an investor’s or a developer’s property in advantage in online listings. The property is more likely to appear in online search results or other queries involving homes for a certain budget. Again, an investor or a developer may be able to get multiple offers using this strategy, which may result in the quick sale of the property.

iii.) Get a professional advice on appraisal Before Selling the property.

It is critical for an investor or a developer to know what their property is worth before selling it. Therefore, an investor should get appraisal advice from a professional real estate valuer who has an intimate understanding of the local market. With an appraisal in hand, you can then set your target price at or below that figure.

iv.) Use the competitor strategy and consumer behavior pricing strategy.

During Covid-19, consumers moved from pricier apartments in town to less pricy apartments in satellite towns due to reduced disposable income. Moreover, as an emerging trend in Kenya, real estate products’ affordability is a concern to most real estate clients. Therefore, even though a property in a certain location might have a monopoly in that micro-market, the development is still subject to competition from other markets that offer reasonable substitutes. Real estate products share many aspects with an oligopolistic market where pricing is used as a competitive tool. This means that the competitors’ actions and consumer’s behavior have to be considered carefully when making pricing decisions on the own property as it affects both prices and selling times on the market.

Conclusion

Some of the most significant challenges in real estate developments have always been pricing the properties and the take-up rate. Therefore, an investor or a developer needs to consider the above pricing strategies to dispose off their properties into the market efficiently. At the same time, investors involved in larger projects with numerous phases over longer periods should emphasize long-term strategies because their actions might have longer impacts, and their early efforts might affect the performance of later phases. Still, with the economic dynamics, such as inflation adding to the cost of building materials, it is only logical that an investor or developer considers these pricing strategies.

Buildafrique Consulting Group is a specialist in developing Real Estate Marketing Strategies, and Property Sales and Letting Agency, including Feasibility Studies and Market Research, and Property Management.

B.) WEEKLY NEWS HIGHLIGHTS

          MAJOR ECONOMIC NEWS HIGHLIGHTS

i.) Treasury overshoots its 2020/21 budget by Sh120.8bn

According to new documents filed in parliament, the National Treasury has overshot its approved 2020/2021 budget by Sh120.8 billion attributed to Covid-19 related expenditure. According to the National Treasury cabinet secretary, Ukur Yatani, the overall ministerial cumulative expenditure in the fiscal year 2020/21 had increased by four per cent from the original approved budget, of which recurrent and development spending rose by 2.1 and 7.7 per cent, respectively. Supplementary budget estimates tabled in Parliament on 11^th February 2021 show the Treasury spent Sh45.6 billion to repay debt, pension, and foot salaries for constitutional officeholders.

ii.) Cash in circulation hits a historical record of Sh234 billion

The amount of cash in circulation rose to a historical record of Sh233.7 billion in December 2020 as Kenyans went into the festive period. According to new data by the Central Bank of Kenya (CBK), the value of currency outside the banking system — which is an indicator of the prevailing economic activity — rose for three consecutive months since the easing of restrictions imposed to curb the spread of the corona virus. The data further shows that demand deposits — cash available for withdrawal in banks — fell by four percent (Sh62 billion) from an all-time high of Sh1.448 trillion in November 2020 to Sh1.386 trillion in December 2020.

iii.) Counties allocated Sh400b in the 2021/22 budget after a deal

County governments will be allocated an additional sh53.5 billion in the 2021/2022 financial year. Under the deal brokered by the Intergovernmental Budget and Economic Council on 11^th February 2021, county governments will get an accumulated amount of Sh409.88 billion during the period. That comprises an equitable share of sh370billion, conditional allocations from the share of National Government revenue of Sh7.53 billion, and another portion from proceeds of loans and grants by development partners to the tune of Sh32.34 billion.

iv.) Private sector optimistic on jobs as economy recovers

According to a poll by the Central Bank of Kenya (CBK) in its January 2021 markets perceptions survey, on average, 42 per cent of firms in the private sector expect either an increase or strong increase in the number of people employed in 2021 relative to 2020, up from 36 percent in a similar survey done in November 2020. The continued recovery of the economy from the downturn caused by the Covid-19 pandemic has seen companies increase their labor force in line with rising business in January 2021. The survey further indicated that the increase in employment opportunities in the private sector in January 2021 was attributed to strong business prospects expected with increasing demand following the easing of Covid-19 containment measures, improved market optimism, expected increase in government spending on development infrastructure, and expected increase in economic activity.

          CONSTRUCTION INDUSTRY HIGHLIGHTS

i.) LAPFUND to Break Ground on KSh. 3.5 Billion Kisumu Estate

On 11^th February 2021, the Local Authorities Pension Fund (LAPFUND) announced plans to begin the construction of a KSh. 3.5 billion in Kisumu’s Makasembo Estate to replace the old buildings. The fund wants to put up 1,700 housing units on the 10-acre piece of land following the government’s affordable housing agenda. According to LAPFUND chief executive officer David Koross, the development, whose groundbreaking is scheduled for 1^st March 2021, will comprise one, two, and three bedroomed houses with prices ranging from KSh 1.6 million to KSh 2.5 million.

ii.) Centum real estate launches construction of affordable houses in Ruaka

On 11^th February 2021, Centum Real Estate Ltd, a Centum Investments Company subsidiary, added affordable residential developments in Nairobi to its portfolio by launching 26 Mzizi Court, a residential project nestled within the 102-acre Two Rivers development in Ruaka. According to Centum Real Estate Managing Director Samuel Kariuki, the 26 Mzizi Court offers one, two, and three-bedroom apartments, and that the construction works will include the construction of the estate is expected to take 30 months.

iii.) State injects Sh70b into Konza City project

The government has injected Sh70 billion in the Konza Technopolis construction Project with a large allocation of the money invested in the construction of the horizontal infrastructure, instrumental in the development of the 5000-acre parcel of land. According to Konza Technopolis Development Authority (KOTD) Director-General John Tanui, Sh40 billion has so far been spent to lay underground construction utilities that will service upcoming structures. An additional Sh17 billion has been spent on a modern data center, while Sh13 billion will be used to construct the Konza Advanced Institute of Science and Technology campus.

iv.) Kenya constructors feel the pain of the high cost of construction steel.

The high demand for steel amid low global supply has seen prices of construction steel and metals shot by up to 25 per cent in Kenya, with a kilogram currently selling at Sh125, up from Sh85 in December 2020. According to Fitch Ratings, the recent global rally in steel prices will be short-lived, with prices starting to decline towards the end of Q1 2021. According to hardware operators in Kenya, most metal suppliers are clinging to 2020’s stock, with those willing to sell quoting high rates.

          COMMERCIAL REAL ESTATE HIGHLIGHTS

i.)  Kenya residential sector remains a buyers market

According to Knight Frank’s Kenya Market Update for the second half of 2020, Kenya’s prime residential sector remained a buyers’ market in 2020, as prime residential rents declined sharply by 10.25%, compared to 2.8% in 2019. That was attributed to the continued oversupply of rental properties, less disposable income due to the pandemic’s unfavorable economic climate, budget cuts from multinationals, and fewer expatriates in the country.

ii.) Housing PS Says Affordable Housing Program Effective for Markets

On 11^th February 2021, the State Department of Housing Permanent Secretary Charles Hinga noted that he was optimistic that the government’s affordable housing program is achieving the desired impact on house prices. According to the PS, the government had managed to make developers bring the cost of housing significantly down. The PS further noted that the government had put a cap on affordable housing buyers at 50,000 sqm for units built on government land and 60,000 per sqm for those on non-government land.

iii.) Kileleshwa and Kilimani lead in the number of apartments for sale.

According to the HassConsults recently released property index, Kilimani and Kileleshwa accounted for 28 percent and 17 percent of the sales property mix or a combined 45 percent, as at the end of 2020. The oversupply of the housing units for sale in the two suburbs lead to the biggest quarterly and annual fall in sales prices at 2.6 and 2.8 percent for Kileleshwa and 9.9 and 8.6 percent for Kilimani.

iv.) Land prices drop in Nairobi suburbs

According to the latest land index by the HassConsult, land prices in Nairobi’s satellite towns fell 1.1 percent in 2020 compared to a 6.93 percent growth in 2019. According to the Index, Kiambu town had the sharpest correction of 11.4 percent, followed by Ruiru, Limuru, and Syokimau, where prices fell by 6.0, 3.0, and 2.6 percent respectively in the last 12 months. The fall in land prices was attributed to tighter conditions for accessing credit and the Covid-19 pandemic, which reduced buyers’ purchasing power.

C.) KENYA REAL ESTATE TRENDS

i.) Demand for grade A Office Space in a downward trajectory amid the Covid-19 pandemic.

According to the latest report by the Knight Frank, the demand for Grade A office space decreased by 50% in 2020, and the overall absorption plummeted by 47%. The report further indicated that rents of prime commercial offices in Nairobi decreased from US$1.3 per square foot (sq. ft) per month to US$1.12 per sq. ft per month in the second half of 2020.

The downward trajectory in the performance of commercial office was mainly attributed to the continued oversupply of commercial space and unfavorable economic conditions, which resulted in the majority of tenants halting their space requirements as staff worked remotely.

ii.) Cold Storage development leads in the Kenya real estate market amid the Covid-19.

Investment in cold storage is growing in Kenya due to an e-commerce expansion into the grocery business. In particular, in Machakos County, Mlolongo continues to attract investors for storage and logistics facilities due to its strategic proximity to Nairobi and JKIA, together with key infrastructure improvements such as the SGR and the Inland Container Depot (ICD).

Scania East Africa Limited commenced construction of its Ksh 1 billion cold storage facility in Mlolongo amid the Covid-19, which is expected to be completed in 2021. At the same time, Mauritius based Real Estate Income Group Grit is currently in the process of finalising a Ksh 4 billion sale-and-leaseback of its warehouse located in Mlolongo from consumer goods manufacturer Orbit Products Africa. The Income Group further announced plans to expand its logistics presence by constructing an additional 109,167 sq. ft of warehousing space in Mlolongo between 2021 and 2022.

D.) GLOBAL REAL ESTATE TRENDS

i.)  Demand for Vacation Homes in U.S. continuous in an upward trajectory

According to the US National property broker Redfin, mortgage applications for vacation homes in the U.S. soared 84% year over year in January 2021. While that’s down from a peak 118% year-over-year increase in September 2020, it’s up significantly from a 2019 and marks the eighth straight month of 80%-plus year-over-year growth.

The annual rise in vacation home (second-home) applications is more than double the increase in primary homes applications. Demand for primary residences rose 36% year over year in January 2021, down from the 65% peak in September 2020 and the smallest increase since May 2020. On the contrary, in Kenya, mortgage application for primary homes is expected to increase in 2021 compared to secondary homes.

ii.) Global Commercial Property Investment fall amid the Covid-19

According to a Global property consultant CBRE, the worldwide commercial real estate investment increased by 84% quarter-over-quarter in Q4 of 2020 to $290 billion but was down by 20% from Q4 2019. Nevertheless, the annual global commercial investment was down by 26% from 2019, attributed to the Covid-19 pandemic.

The Q4 of 2020 rebound was significant in all three global regions, the Americas, EMEA (Europe, Mediterranean, and Africa), and the Asia Pacific region attributed to the anticipated deployment of the Covid-19 vaccine and continued economic recovery, which buoyed investor sentiment. In December 2020 and January 2021, the Kenyan economy has been picking up the commercial property sector despite a 47% plummet in 2020.

E.) COMMON REAL ESTATE & DEVELOPMENT CHALLENGES,  AND SOLUTIONS

Qualifying for a Real Estate Mortgage.

YOUR CHALLENGE:

Despite the fact that mortgage borrowers are experiencing the lowest interests in Kenya history couple with government subsidized mortgages at 7% by Kenya Mortgage Refinancing Company, many Kenyans are still having a hard time qualifying for a mortgage from the bank or other financing institutions. This holds especially true for self-employed persons, and those who have just started their jobs due to various factors ranging from low credit score to lack of collateral.

THE SOLUTIONS:

The guaranteed solution to this challenge is paying the property in cash; but that requires that you are either rich or have been saving up for a long time.  This being not an option to many, mortgage borrows should work on the following:

• Credit Score: Mortgage borrowers should protect and improve their credit score in order to be able to take a mortgage when this need arises. If you have a debt, make sure you pay it down, or at least be in a position whereby you are serving the debt.

• Down payment: Another solution is to raise a down payment, to lower the amount of the mortgage or amount to be borrowed. This has a positive effect on the cost of finance, by lowering the interest rates. In most case, you need to raise a down payment of 20 – 30% to obtain a better interest rate on your property loan. If you know that sooner or later you shall want to buy a property on mortgage, then you need to start saving money for a down payment as early as possible.

• Debt-Income Ratio: Mortgage borrowers should also be aware of the Debt Income ratio for qualifying for a mortgage before making application for one. This is the ration of monthly mortgage repayment to your income. Most banks and mortgage companies require borrowers to keep the mortgage ratio at 35% or less of your income. You should therefore plan to improve your income to a Debt-Income ratio that can qualify you for the mortgage that you intend to take or borrow.

• Documentation: The Lender will require various documentation at the pre-approval stage and later to provide any additional paperwork requested by the lender. The borrow should therefore prepare to have all the documentation ready, to allow a smoother mortgage process.

THE CONSULTANT TO ENGAGE:

The Consultants to engage in Project Finance and Consultancy of mortgage borrowing is a Real Estate Finance Consultant.

F.) THIS WEEK ON FREQUENTLY ASKED QUESTIONS (FAQs), AND ANSWERS

QUESTION:

Can Non-Muslim access Islamic Finance?

ANSWER:

Islamic finance industry has grown to global assets of over $2 trillion and growing at around 10 per cent per annum, taking hold in leading international markets. Islamic capital market with issuances of Shariah-compliant asset-based securities (Sukuk) has also reached over $100 billion today.

With these recent developments, it is pertinent to ask, does Islamic finance have something to offer to non-Muslims?

While it was previously a small market catering to Muslims who wanted to avoid interest-based conventional banking, Non-Muslim investors have also been looking for less risky finance alternatives.

Non-Muslims are therefore making a significant customer base of the Islamic banks. Consequently, Islamic banks are now carrying out their activities not limited only to people who are Muslims, but also open to non-Muslims. In other words, Islamic banks can provide financing or services to non-Muslims.

Sharia finance is a blend of Islamic economics and modern lending principles and its products can be sold to Muslims and non-Muslims. Globally, sharia bonds (Sukuk) are among the fastest growing Islamic finance instruments, with recent issuers coming from non-traditional Muslim markets.

G.) THIS WEEK ON DEVELOPMENT COSTS ANALYSIS – KISERIAN AREA, NAIROBI COUNTY

This week’s focus on Development Cost Analysis is for Kiserian Area in Kajiado County, this being another fast-growing satellite town in the Metropolitan area of Nairobi. The Development type in this area according to the land-use and county zoning regulations includes Apartment Blocks, Maisonettes and Town House, and Shopping and Retail Complex..

Below is an analysis of Construction Cost per Square Meter (SM), for the option of procuring the development project through a Building Contractor, or an option of direct procurement of the Materials and Labour through a Labour Contractor for recommended building types.

H.) THIS WEEK ON REAL ESTATE PRICE ANALYSIS – KISERIAN AREA, KAJIADO COUNTY.

The Real Estate price analysis focus for this week is on land, sale, and rental prices for a 2 and 3 bedroom apartment in Kiserian- Kajiado County. The data were obtained through surveys, and analysis of asking prices on property listings in Nairobi.

i.) Sales price – Apartment and houses

ii.) Rent price – Apartment and houses

iii.) Land price per acre (commercial/residential)

I.) CENTRAL BANK OF KENYA INTEREST RATE WATCH – (T-BILLS)

Liquidity in the money market was relatively tight during the week ending 12^th February 2021, partly reflecting tax remittances which offset government payments. The interbank rate, which is an indicator of liquidity levels in the banking sector, plummeted by 1.82 percentage points to 3.511 percent, indicating reduced banking sector activities.

91 day T-bill rate rose by 0.03 from 6.873% previous week rate to 6.905%. CBK offered a total of Kshs4 billion, and bids amounted to Kshs 956.43 million, of which Ksh945.08 million was accepted. 182 day T-bill rate increased by 0.05% from 7.594% previous week rate to 7.644%. CBK offered a total of Kshs. 10 billion, and bids amounted to Ksh 4.697 billion, of which all was accepted.  The 364 day T-bill increased by 0.11% from 8.716% previous week rate to 8.824%. CBK offered a total of Kshs10 billion, and bids amounted to Ksh 16.049 billion, of which 14.047 billion was accepted.

J.) KENYA EQUITY MARKET INDICES

Investors trading confidence at the Nairobi Security Exchange (NSE) rose in the week ended 11^th February 2021, as evidenced by reduced trading activities. During the week, foreign investors assumed a net buying position by accounting for 69.27% of the total market sales and 59.51% of the total market purchases.

The NSE All-Share Index, NSE 25 share index, and market capitalization, which are the main measures of the equity market’s performance, increased by 4.40%, 1.27%, and 3.86%, respectively. The I-REIT turnover reduced by 42.22% during the week, indicating reduced real estate activities.

K.) CURRENCY HIGHLIGHTS

The Kenya Shilling remained relatively stable against major international and regional currencies during the week ending 11^th February 2021. The local currency strengthened against the greenback by 0.3777 points, attributed to the balance of trade deficit.

The usable foreign exchange reserves remained adequate at USD 7,638 million (4.69 months of import cover) as of 11^th February 2021. That meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover and the East Africa Community (EAC) region’s convergence criteria of 4.5 months of import cover.

M.) FACTORS THAT WILL SHAPE THE REAL ESTATE AND OTHER MARKETS IN THE NEXT ONE WEEK.

i.) High Cost of Construction materials

The high demand for steel amid low global supply has seen prices of construction metals shoot by up to 25 percent in Kenya, with a kilogram currently selling at Sh125, up from Sh85 in December 2020. As such, manufacturers of steel products have increased prices of goods ranging from construction bars to galvanized sheets and steel tanks to reflect soaring metal prices in the global market.

The increase in the cost of construction material is expected to impact the cost of construction negatively. Consequently, the high cost of construction is expected to increase the sale or rent price.

ii.) Reopening of the economy

On Wednesday, 10^th February 2021, President Uhuru Kenyatta hinted at plans to re-open the country fully by lifting most of the containment measures imposed in 2020, including a night curfew that starts from 10 pm to 4 am. That is after the positivity rate was reduced to below 5 in 8 consecutive days.

The hint on reopening the economy and the reducing positivity rate is expected to raise investors’ confidence to reopen offices and retailers to reopen their retail stores, as well as foreign investors to increase investments into the country’s real estate market. Furthermore, new office spaces and retail stores are expected to be taken as new investors, and SMEs enter the market.

N.) UPCOMING REAL ESTATE EVENTS AND TRADE SHOWS IN THE COMING ONE WEEK.

i.) Webinar: The Big 4 Agenda: Opportunity for contractors – The webinar will discuss the Kenya Big 4 Agenda, particularly the manufacturing agenda and the related construction opportunities.

Date: 23^rd February 2021

Time: 10:00 PM

Venue: Online

Event Organizer: https://nca.go.ke/training/contractor-s

ii.) Trade Show: Global Investment, Real Estate & Residency Show – The show will attract high net worth visitors, leading real estate developers, investment firms, and legal consultancy firms globally and who intend to invest in international real estate.

Date: 24^th February 2020

Time: 11:00 AM- 12:00 PM

Venue: Online

Event Organizer: https://www.almfirst.com/event/2021-monthly-mortgage-pipeline-hedging-update-webinar-series/2021-01-12/

Writer of the Report:

This Report is written by Buildafrique Consulting Group, Kenya multi-disciplinary consultancy, that offers END-TO-END DEVELOPMENT CONSULTANCY, REAL ESTATE, and PROJECT FINANCE solutions through specialized subsidiaries. Among our solutions includes:

1. Feasibility Studies and Market Research.
2. Project Finance and Capital Raising.
3. Project Management.
4. Investment Design Appraisal.
5. Quantity Surveying
6. Construction Cost Consultancy
7. Physical Planning and Planning Permissions
8. Environmental Management and Impact Assessment
9. Real Estate Development and Structured Investment Solutions
10. Property Valuation
11. Marketing and Property Sales Agency
12. Property Management and Facility Management

Our Contacts:

• Office: Navigators, Kindaruma Road, Nairobi.
• Website: buildafrique.com
• Email: [email protected]
• Tel: +254 20 8058493  /  Mobile: +254 722 474285 

Disclaimer:

The information contained in this report is for general information purposes only. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information contained on the report for any purpose. Readers are therefore advised in all circumstances to seek the advice of Registered and Licensed professionals in all matters related to Real Estate Investment and Project Development.