Kenya has, in the recent years, been billed as one of the best places in the world to invest in. This can be as a result of a number of factors, including the fact that Kenya is a favored business hub for oil and gas exploration, manufacturing and transport.
Kenya ranked 92 out of 189 economies in the 2017 Ease of Doing Business report released by the World Bank.
One of the areas that has experienced tremendous growth over the past few years is the real estate sector. According to the Kenya National Bureau of Statistics, the real estate sector contributed to 8.4 per cent of Kenya’s GDP in 2016, and grew by 8.8per cent in 2016 from a 7.2 per cent growth in 2015.
This performance can be attributed to a relatively stable political environment, as well as favourable macroeconomic conditions that led to sustained GDP growth and a stable exchange rate resulting in positive development within the sector.
With a rapidly growing middle class looking for investment opportunities that will allow them to maximize their increasing disposable incomes, many have turned to real estate as an investment vehicle. The growth of real estate in the country can be largely attributed to the housing deficit currently being experienced in Kenya. With only 20,000 housing units being provided by the market against a population growth rate of 4.2 per cent annually that causes a demand of approximately 150,000 new housing units a year, it is clear that real estate will present a superb opportunity for anyone looking for an investment opportunity.
Real estate has consistently outperformed other asset classes in the last five years. It generates returns of over 25 per cent per annum, compared to an average of 12 percent per annum in the traditional asset classes, with residential units in Kenya in the last five years generating an average price appreciation of 10 per cent, with land generating an average capital appreciation of 19 per cent per year.
The robustness of the real estate sector has also been supported by Government initiatives such as digitising of the Lands Ministry, issuing of title deeds, waiving of the fees payable to the National Construction Authority, National Environment Management Authority and title searching fees as well as a 15 per cent tax cut for large-scale developers, that have created a conducive investment climate for real estate investment and lowered construction costs.
The real estate sector, however, has not been without its challenges. According to industry experts, there was a reduction in the value of building approvals in Nairobi between January and July 2017, which dropped by 33.7 billion to Sh. 149.5 billion in 2017 from Sh183.2 billion during the same period in 2016.
Sector statistics also indicated that the sector recorded rental yields of 9.6 per cent in retail, 9.2 per cent in commercial office and 5.2 per cent in residential sector, resulting to an average rental yield for the real estate market of 8.0 per cent, compared to 7.8 per cent in 2016.
Despite the reduced returns in 2017, 2018 is likely to see the sector recover. Continued growth in the Kenyan real estate sector will be driven by improved macroeconomic conditions and a changing operational landscape that will see developers work towards satisfying the large housing deficit. Improving infrastructure and the growing middle class with higher purchasing power will also be key drivers in the recovery of the sector.