The growth of house sale prices in Nairobi slowed down in the first quarter of the year as the high cost of credit hit demand from home buyers.
Rental asking prices also expanded at a slower pace despite the fall in inflation during the period, indicating that the tough economic conditions are still weighing on the spending power of Kenyans.
A quarterly property index released by real estate firm HassConsult shows that house prices in the city and its satellite towns grew by 2.7 percent in the quarter, compared to 4.1 percent in the fourth quarter of 2023. Rents grew 0.4 percent, compared to 2.5 percent in the previous quarter.
The average price of mid- to upper-class properties in the city, covering all property types, stood at Sh35.9 million at the end of March 2024, according to the HassConsult data.
The average value of a four- to six-bedroom property stood at Sh39.7 million, while that of a one- to three-bedroom property was Sh13.1 million.
“The rise in asking prices moderated in the first quarter of the year as credit conditions tightened following the increase in the CBK’s base lending rate to 13 percent, which has had the effect of sweeping liquidity from the market,” said HassConsult head of development, consulting, and research Sakina Hassanali.
“Although inflation has fallen since the beginning of the year, the economy remains generally subdued, muting growth in rental yields to 6.9 percent in March from 6.7 percent in December 2023.”
The cost of bank credit rose in the quarter on the back of an increase in the base rate by the Central Bank of Kenya (CBK) to 13 percent in its February 2024 Monetary Policy Committee meeting, from 12.5 percent in December, and 10.5 percent in October 2023.
The rate increases were put in place by the CBK in an effort to bring down inflation and help the shilling reverse its depreciation against the dollar.
Banks in turn increased the cost of money in the economy, adjusting their lending rates in line with that of the CBK.
For property developers, a rise in the cost of credit directly impacts their pricing of property coming onto the market, since they have to service loans incurred when putting up the houses.
Buyers who rely on bank financing to make home purchases also face the direct impact of the adjusted rates.
In the suburbs, the highest price increase was seen in Ridgeways and Loresho at 2.9 percent and 2.7 percent, respectively, while in satellite towns, the top performing areas were Juja at 3.4 percent, Ngong at 2.7 percent, and Limuru at 2.2 percent.
Markets & Finance
How weak shilling lifted house prices in Nairobi
Wednesday February 07 2024
Sakina Hassanali, head of development consulting and research at HassConsult. FILE PHOTO | NMG
Property prices in Nairobi and its satellite towns defied tough economic conditions in the fourth quarter of 2023 to rise at the highest pace in seven years.
Property price analysis done by realtor HassConsult shows that house prices across all segments rose by 4.1 percent in the three months to December 2023, a level last seen in the first quarter of 2016 when prices went up by 4.2 percent.
The appreciation, which marked a sharp reversal from the decline of 1.1 percent seen in quarter three (to September 2023), was largely on the back of a weaker shilling raising the attractiveness of the local property market to external investors.
Read: Land, city home prices increase fastest in years
A weaker shilling lowers the entry barrier for foreigners looking to buy into Kenyan property, given that they need less of their hard currency to pay for local units.
Those exiting would however face exchange losses, but because investments in the sector tend to be long term, they have time to ride out the weakness of the shilling.
“Although the weaker currency raises input costs for developers on ongoing and future projects, it makes the Kenyan property market attractive to foreign investment, buoying asking prices due to augmented demand from these investors,” said HassConsult Head of Development Consulting and Research Sakina Hassanali.
“The property market offered a total return (capital gains plus rental yield) of 8.3 percent in the fourth quarter of the year, illustrating renewed resilience in the face of the challenging conditions that also included high-interest rates.”
In the quarter, all 18 Nairobi suburbs surveyed by HassConsult recorded higher buying prices, led by Ridgeways (4.9 percent), Langata and Spring Valley (4.4 percent) and Loresho (3.9 percent).
In the satellite towns, Juja, Kitengela and Athi River were top performers in sales prices during the quarter with gains of 4.6 percent, 4.4 percent and 3.8 percent respectively.
In the rental market, satellite towns offered higher returns to developers, indicating more robust demand on account of affordability and improved access infrastructure.
The fastest growing rental asking prices were found in Athi River at 7.5 percent in the quarter, followed by Kitengela and Ongata Rongai at 5.6 percent each, and Tigoni at 5.1 percent.
In the suburbs, Kilimani offered the fastest-growing rental prices at 3.7 percent, followed by Runda at 3.3 percent.
Read: Nairobi suburbs post fastest land price surge in four years
The rebound in property returns offers hope that the sector is coming out of the slump that was induced by the Covid-19 pandemic, which saw buyers pause activity due to economic uncertainty, and landlords struggle to fill units as thousands of Kenyans lost their jobs on reduced economic activity.
Similarly, developers cut down the construction of new units on concerns about the reduced uptake of houses.