Cytonn Real Estate, the development affiliate of Cytonn Investments released its 2018 Cytonn Nairobi Metropolitan Area Land Report. The report themed “Nairobi Metropolitan Area Land Report 2018: The Resilient Investment Option” focused on land price appreciation in the Nairobi Metropolitan Area in 2017. It is based on research conducted in 17 suburbs and 11 Satellite Towns in the Nairobi Metropolitan Area.
According to the report, the land prices appreciated in most areas in Nairobi Metropolitan Area, growing with an annual appreciation of 3.7% in 2017, down from growth with a 6-year CAGR of 17.4%, attributable to the tough operating environment in 2017.
Speaking during the release, Senior Manager, Regional Market, Johnson Denge, noted that “the key factors driving land prices have mainly been positive demographic such as a high population growth rates of 2.6% p.a, higher than global averages of 1.2%, a rising middle class with increasing purchasing power, continued investments in infrastructure such as roads, water, sewer and power connection, reduced supply of development class land at affordable prices, and a robust real estate sector.”
Based on individual zones performance, High rise residential areas recorded the highest capital appreciation rates, growing by 4.8% y/y against a market average of 3.7%. The growth was supported by high returns per unit of land value as the areas allow for densification, and increased demand for housing from the growing middle-income population. Areas zoned for commercial development such as Westlands and Kilimani recorded annual appreciation rates of 3.4% y/y, down from a 6-year Compounded Annual Growth Rate “CAGR” of 20.0%. The slowdown in growth is attributed to the increased supply of commercial developments, with offices having an oversupply of 4.7 mn SQFT in 2017, and therefore a decline in demand for land for commercial developments. Site and service schemes had the lowest appreciation rates with the asking prices growing by 2.7% y/y, lower than the 3.0% recorded for unserviced land in the same localities. Implying that buyers are not willing to pay a premium for the services provided, rather opting for unserviced land which is cheaper, and providing the services on their own, in areas such as Ngong, unserviced land is 36.0% cheaper than serviced land.
The report noted that the land sector is facing challenges such as inadequate infrastructural development as seen through the shortage of trunk infrastructure such as electricity, water drainage, sewer and roads in specific areas, slowed real estate sector performance as a result of the extended electioneering period and thus reduced demand for land, and a difficult legal environment characterized by long procedures in title deed issuance and cases of double titling. The factors expected to shape the sector in 2018 are government land banking initiative, digitization of land ministry, and the relaxation of zoning regulations of some suburbs such as Spring Valley.
“Karen, Kilimani, Ridgeways, Juja and Kasarani were among the best performing sub markets in terms of capital appreciation, recording annual rates of more than 5.0% in 2017, and are thus the most attractive areas for both land and real estate development, while for site and service, Thika offers investors the highest expected returns of on average 9.7% against a market average of 3.7% ” Speaking during the release of the report, Research Analyst Juster Kendi noted that “ Thika’s price appreciations was boosted by speculative tendencies brought about by the growth potential of the area and urbanization pressure due to devolution ”.
The submarkets with the lowest returns were Nyari, Riverside and Upper Hill attributable to increased land prices over the last 5 years, whereby the area recorded an annual growth of 20.8%, an oversupply of office space in the node as well as traffic congestion into and out of the area that has led to many developers focusing on Kilimani, an upcoming office node with lower supply
The report indicates a positive outlook for the land sector in Nairobi and the firm expects the land and real estate market witness price increments driven by the stable macroeconomic outlook and positive legal reforms.
Cytonn Investments is an independent investment management firm, with offices in Nairobi – Kenya and D.C. Metro – U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs. 82 billion of investments and projects under mandate, mainly in real estate.