Detached houses warm up property market

Growth in the residential property sector in Kenya remained stable in the first-half of the year, a new survey shows, buoyed by strong demand in the upper-mid end market for detached units.

Single family detached homes particularly generated huge interest, a report by the Architectural Association of Kenya (AAK) shows—an indication of the preferences generated by more people working from home due to disruptions caused by the Covid-19 pandemic.

“Single family detached homes, seemed to generate interest, perhaps now that more people are working from home. Moving forward, it is possible that the same trajectory may be experienced post-Covid” AAK says in a report.

The upper mid-end market for detached units recorded a positive change of 1.3 percent as asking prices continued to increase in markets such as Lavington and Ridgeways, due to their appeal to the growing middle class.

The apartment market, however, recorded declines in price appreciation across all segments.

The total returns came in at an average of five percent and 5.3 percent for detached units and apartments, respectively.

“This was an increase from the 4.1 percent and 5.2 percent record at the end of the financial year 2019. The same may be attributed to the growth in rental yields which grew at an average margin of 0.7 percent” AAK says.

A separate report by real estate firm, Cytonn Investments indicates that apartment market performance was characterised by a marginal drop in annual price appreciation averaging 0.2 percent in the first half of 2020—a drop attributed to price discounts offered by various developers in a bid to sell off old stock.

The price per square metre (SQM) for apartments in the period came in at an average cost of Sh96,543, down from Sh98,352 in the first half of 2019.

“Interestingly, the residential apartment rental market remained relatively strong with yields averaging 5.5 percent in 2020 compared to 4.9 percent in Half 1 of 2019, owing to a perceived increase in occupancy rates, which stood at an average of 86.7 percent compared to 84.3 percent in the same period in 2019” AAK notes.

The upper mid-end markets such as Kilimani and Kileleshwa recorded a negative price appreciation of 0.7 percent which was attributable to decline in asking prices.

Westlands on the other hand recorded an average annual price appreciation of 1.6 percent, attributable to growing investor demand. This is linked to the growing market for short-stay luxury apartments owing to the presence of amenities and infrastructure in the area as well as its proximity and centrality.

Interestingly, lower mid-end markets recorded a price appreciation. Dagoretti, Thindigua and other lower mid-end markets recorded a price appreciation of 3.1 percent and 1.2 percent, respectively, driven by demand from Nairobi’s working population.

“It is possible that the same trajectory may be experienced post-Covid-19. The residential apartment rental market remained relatively strong in light of the prevailing circumstances and this has provided an opportunity for local suppliers and manufacturers,” the report states.

The effects of the Covid-19 pandemic was greatly felt in commercial property as the report shows a 0.2 percent and 0.3 percent points decline in the first half in average rental yields and occupancy rates down from 7.5 percent and 80.3 percent, respectively in 2019

“The decline was mostly a result of the measures taken by the government to reduce spread of Covid-19 thereby leading to drop in demand for office spaces. Organisations put on hold expansion plans due to adapting work-at-home strategies, while others opted to scale down operations amidst declining revenues and high levels of uncertainty,” the report reads.

Best performing submarkets

Office rent also declined by 0.8 percent in the first half to an average of Sh95.3 per square feet from Sh96.0 per square feet same period last year.

The best performing submarkets so far include Gigiri (8.9 percent), Karen (8.3 percent) and Westlands (8.2 percent) owing to their preferred locations and availability of top-quality offices.

Meanwhile, locations such as Nairobi CBD (6.8 percent), Thika Road (6.2 percent) and Mombasa Road (4.7 percent) recorded low rental yields due to businesses avoiding traffic jams.

From a general overview, the construction industry had a growth of 6.4 percent in 2019 down from 6.9 percent in 2018. This can be partly attributed to the rise in index of government infrastructure expenditure from Sh415.5 billion in 2018 to Sh456.8 billion in 2019.

On the brighter side, the total value of buildings approved in the first two months of 2020 was Sh96.9 billion, which was a 174.4 percent increase compared to the same period last year.

This was attributed to the clearance of construction approvals by Nairobi County early this year that saw the approval of 4,400 development project applications that had piled up since August 2019.

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