Reasons Why Kenya Won’t Experience A Property Bubble Burst Soon
The property bubble is a theory to put off new players in the property market
The discussion on the property bubble has been on since 1999. The story attracts a lot of media attention and is believed by many of those who have not invested in the property market yet. The discussions are mainly initiated by big players in Real estate. In the meantime the players move on and set up very big developments as the discussions continue to discourage the players and those individuals who believe in such stories from focusing on emerging opportunities in the industry.
The bubble burst story gives false hope to those who wait for properties to drop in price so they could buy at a lower price. In 1999 when discussions started, a plot in Syokimau was being sold at Kshs.70, 000 (50*100 plot). The same plot is now valued at close to Kshs.4 million. The bubble theory continues and my view is that it will not come till 100 years to come. My reasons for this are as follows;
- Kenya is a growing country with a population estimated at 47,000,000 and estimated to rise to 73,000,000 by the year 2030 - These people require land to build their dream houses, houses to live in(whether rental or purchase) and commercial space to do business. The properties can only go up due to increase in demand for real estate.
- Very few mortgages - A property burst happens when citizens have borrowed right and left and at some point they have no money to repay the mortgages. In Kenya we only have 24,000 mortgages according to Central Bank of Kenya data 2016. This is 0.05% of Kenyan population. These are very few mortgages indeed.
- Growing incomes - Kenyans are entrepreneurial and this has led to the registration of 200,000 businesses according to Nairobi county records. More businesses are getting registered across the country. This means that they need offices, residential houses and demand is on the rise. This is the reason that the bubble theorists will wait for another 100yrs. It is estimated that demand of affordable homes will keep rising as the GDP is estimated at 6% in 2017.
- Diaspora inflow - Kenya is attracting over 156 billion from Kenyans in diaspora. The figure could be only 25% as more money comes in through informal means. Most of the diaspora remittances go to the purchase of land, houses and real estate projects. This inflow will keep pushing the prices up.
- Infrastructure development and vision 2030 projects are pushing real estate to an all-time high - Kenyans are now able to live,work and do business in areas like Kitengela, Thika, Ngong and other areas. This means that the towns keep growing as all the amenities are locally available. A good example is Kitengela, where there are 14 banks, over 7 functional universities, hospitals and supermarkets among other many eateries. Those facilities push the prices of properties in these suburbs even higher as Kenyans are able to stay within the town (suburb) ecosystem. For instance in 1999 a plot in Kitengela town wasKshs. 350,000(50 by 100) while now in 2017 its retailing for around Kshs. 25,000,000. You move further 2 miles in Kitengela in 2010, an acre in Acacia area, where Optiven'sVictory Gardens Phase 3 is located was Kshs.900,000 and today its 10 million. This is about supply and demand as Kenya is small;we have only 143 million acres against a projected population of over 90 million people by the year 2050.
- Devolution - This has taken back to rural towns up to 350 billion per year . The staff movement to county government means that they need shopping centers, houses to live in and land to build on. The real estate in the counties is actually a bushfire and this will continue as the county government gets more funds and betterstructured as the public demand for more facilities.
- Inflow of expatriates - Kenya is a home to many nationalities. We have seen global firms open regional offices in Kenya as they target the African market. This inflow of experts has driven rental prices in the upper market to about Kshs. 300,000 per month. Kenya has been rated as the 4th most preferred country for high net worth global individuals. Others on the list were Dubai, Nigeria and South Africa. These experts are willing to pay a penthouse for Kshs. 90 Million with ease. That's why I say that the bubble theory is driven by those who do not want others to join the lucrative real estate business.
- Inflow of Foreign Direct Investment (F.D.I) - Kenya has attracted massive funds from world over. We are rated top three in Africa and Middle East, with South Africa and Dubai being at the top of the list. In the year 2016, we had over 108 FDI projects. Some of these projects are pushing real estate to an all time high. Kenya recorded the fastest rise in FDI in Africa and Middle East according to Africa Development Bank report 2016. The projects are over Kshs.102 billion and provide new jobs for Kenyans. 84% of the projects are related to real estate. Once again where is the bubble?
- Global players entering property market in Kenya - Lately as Kenyans fear to invest, we have seen reports from Knight Frank Kenya indicating there is no property bubble and soon after we saw global real estate moguls entering Kenyan market. These include Palm Golding and Remax. We have also seen many Chinese, Turkish and American companies setting up base in Kenya to get a piece of the property cake. If there was an impending property burst, would these companies invest billions to set base in Kenya?
My advice is; invest now and drop all those desk research, media stories done by theorists or real estate owners who want to kill your investment vision. Remember 67% of Kenya is yet to be developed. We are operating at 13%. Real Estate is the real deal.
Written by George Wachiuri
Author entrepreneur and Philanthropist