real estate in kenya investment returns

Real Estate in Kenya ROI – Still a Good Investment?

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On the question of whether real estate in Kenya has good returns or not, I’ll be honest and tell you the truth – yes and no. It depends on how you choose to approach it. 

Two real estate companies in Kenya could work with a similar budget, but end up with contrasting results.

On one hand, we have many commercial and residential developers who are struggling to sell off their properties. The same can be said for most upcoming landlords, as it’s now taking them decades to break even.

On the flip side, however, there are real estate companies in Kenya that are going against the tide and thriving.

Take the cases of Qwetu and Tsavo, for instance. At a time when people are talking of the Kenya “real estate bubble” bursting, the two have been expanding quite aggressively and generating good returns while at it. 

We’ve also seen real estate developments like Ineza selling out off-plan units in months – which is quite the contrast to the many vacant properties that are being repossessed by banks. 

So, the fact of the matter is, real estate in Kenya still has great ROI for the few strategic developers who are quick to adapt to the ever-changing market needs. They are the ones who know that….

Trends Shaping Up Real Estate Returns in Kenya

1. Banks are no longer eager to finance real estate companies

If you were hoping to kickstart your real estate business with financing from banks, we’re sorry to say that it might not be that easy anymore to get them on board. 

After years of lending out construction loans and getting into joint ventures with property developers, commercial banks are now gradually pulling the plug on real estate companies in Kenya. 

Data from the Central Bank of Kenya shows that while banks are increasing lending to other sectors, the volume and share of real estate financing are dropping quite sharply. 

The annualized real estate credit growth plunged from 8% in January 2021 to 0.5% in January 2022. And to put it into perspective, the loan book had shrunk to Kshs 409 billion in January 2022 – down from Kshs 413 billion in September 2021. 

You can blame it all on the growing risk of real estate investments in Kenya. 

In 2021, for instance, the loan defaults by real estate developers grew from Kshs 61 billion to Kshs 74 billion – representing nearly a fifth of the loan book. 

financing for real estate companies in Kenya

Now, with such a high loan default rate, it’s understandable why banks are no longer dishing out construction loans to just any credit-worthy land owner with building plans and a BQ.  

To convince them otherwise, you’ll need, among other things, a real estate feasibility study report that shows you’ve not only analyzed the market exhaustively, but also used the findings to develop a proposal that capitalizes on the available opportunities, mitigates the core risk factors, and has a major competitive advantage over other developments. 

2. Remote working is shifting dwellers to peri-urban areas

Another trend that’s changing Kenya’s real estate market as we know it is telecommuting. 

A 2021 study commissioned by the Ajira Digital program confirmed that indeed, remote working has been expanding precipitously since the COVID-19 pandemic. The volume of digital workers in 2021 stood at 1.2 million – up from 634,000 in 2019. 

That represents about 39% of the formal sector workers documented by the Kenya National Bureau of Statistics (KNBS).

And what does this mean for real estate companies in Kenya? 

Well, for starters, the demand for high-rise urban properties is gradually dropping. More working-class Kenyans are now going for the much cheaper, low-rise units in peri-urban areas. 

This trend has even caught up with businesses, as they’re now increasingly shunning the previously attractive commercial zones. 

So, it’s not that there’s a glut of office spaces in Nairobi. The number of company registrations has almost doubled since 2016 – close to 60,000 new companies are coming into the market every year. But, thing is, a significant chunk of those startups are choosing to operate from peri-urban areas. 

Only South Africa and Nigeria are registering more new businesses in Africa. 

new real estate customers in kenya
The number of new companies in Kenya.

Also, keep in mind that Elon Musk’s internet satellite firm Starlink is on the verge of launching in Kenya. That alone will have a profound effect on Kenya’s real estate market, as Starlink comes with unlimited data that rides on high-speed satellites instead of fibre optic cables. Remote workers will be able to operate smoothly from areas that are not fibre-connected. 

3. Consumer tastes have changed drastically

Government data suggests that the demand for housing in Kenya is higher than it has ever been. But, it won’t tell you that real estate buyers and renters are now way more selective than ever before. 

Consumers need housing alright – but, they won’t settle for just anything that comes their way. 

You see, real estate is like fashion. What would have sold really fast in the early 2010s might struggle to find ready buyers in today’s market. 

Similarly, there are many rental properties whose rents stagnate a few years after construction, simply because they’re just not attractive to the market anymore. 

real estate in kenya trends

It’s this same change in consumer taste that is forcing quite a number of homeowners to sell off their properties at a loss. When their sale price is adjusted to inflation, it turns out that they’re only making gains on the land – not the house that sits on it. 

The impact is even greater on new properties. Buyers and renters are avoiding typical units and opting to spend more on properties that meet their demands. 

You can blame it on the influence of digital media, and the fact that consumers are now predominantly millennials and young Gen Xers. While older generations had to at least be traveled to gain exposure, today’s buyers and renters are developing their unique tastes from the trends they see on the web.  

As such, the market is only favoring the few real estate investors who are future-proofing their property developments. Instead of building units that would have worked for them back in the day, they take the time to understand what the current breed of consumers is after, and then use the insights to competitively position their real estate projects in Kenya. 

Key Takeaways on Real Estate in Kenya

And there you go, ladies and gentlemen – the truth, and nothing but the truth about the current state of the real estate market in Kenya. 

What some speculators thought to be a “real estate bubble” in Kenya is not actually showing any signs of “bursting”. Rather, Kenya’s real estate is simply correcting itself from a speculators’ market to a demand-driven market. 

In other words, you could say that real estate in Kenya has now reached a point where it matches up to other industries. That means your ROI now depends on how well your real estate investment is:

  • Aligned with short-term and long-term consumer needs.
  • Positioned against current, upcoming, and future competitors. 
  • Protected against developing risks. 
  • Responding to market opportunities.  

So yes, real estate is still profitable in Kenya. You just have to be a little bit more strategic than past investors. 

And to help you in developing that strategy, we recommend that you take advantage of our in-depth real estate feasibility study reports. 

Integrum’s team will collect market data from your areas of interest, crunch all the numbers accordingly, and then advise you on the best approaches to take, what you’ll need to put up the proposed projects (including building approvals), the construction costs you might incur, plus the real estate returns to expect over the long haul. 

Otherwise, for more on how our feasibility studies are structured, check out this Feasibility Study Guide for Construction Projects in Kenya

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