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Why apartments dominate Nairobi property market

A World Bank report says 35 per cent of housing supply in Kenya is in the high-end market and 48 per cent for the upper middle-income market yet the highest demand is in the lower middle and low-income segments

Milliam Murigi @millymur1

Residential and luxury apartments in Nairobi continue to register the highest increase in prices compared to bungalows and maisonettes, according to a new report by Cytonn Investment.

The Cytonn Weekly Report says apartments across all the lower, upper and middle market segments accounted for 82.7 per cent of the total number of units sold in the third quarter of 2017. Maisonettes and bungalows accounted for 10.7 per cent and 6.6 per cent respectively.

The growth has been attributed to affordability of apartment units, which on average cost 70 per cent of stand-alone houses in Nairobi and the metropolitan areas, says the report. Despite the increase in prices, apartments recorded an average annual uptake of 24 per cent compared to detached units which recorded an annual uptake of 23.2 per cent in 2017.

Average market price also appreciated by 3.5 per cent in 2017 compared to 7.4 per cent recorded in 2016. The housing sector has experienced reduced price appreciation due to low credit growth to the private sector and the extended electioneering period.

The report reveals that apart from affordability, most people are opting to buy apartments because of the house plinth area, number of bedrooms, presence of backyard and the master en-suite. Other popular amenities are a gated community, gym, swimming pool and proximity to social services.

Johnson Denge, Cytonns senior regional markets manager. Photo/HELLEN MUTURI

Hotels threatened

The report also shows that serviced apartments are the fastest-growing sector as they charge lower rates per night than hotels.

“While a standard three-star hotel charges Sh14,000 per night on average, a one-bedroomed serviced apartment charges Sh11,000, offers larger spaces and has a homely feel,” said Johnson Denge, Cytonns senior regional markets manager.

Moreover, for investors, apartments are ideal as they have relatively longer tenancy tenures of more than a month, thus providing more stable incomes. These homes are also easily convertible to other product offerings such as unserviced apartments or furnished apartments.

Apart from that, development of luxury apartments for the upmarket segment of the market in locations such as Kilimani, Riverside, Upper Hill, Westlands and Kileleshwa, where zoning regulations have been relaxed due to increasing land prices, has also been noted. But the difference is that these developments provide the prestige and exclusivity sought by affluent individuals in the context of highrise residential units.

“Luxury apartments segment is suitable for investors aiming to preserve their capital and generate rental income with little variability. With a total return of 13.1 per cent, luxury apartments are generating a return that is significantly higher by 40 per cent compared to the rest of the residential sector at 9.4 per cent,” he added.

Luxury apartments

And what are the factors driving development of luxury apartments? Increased incomes and exposure to international designs and trends has resulted in refined tastes and sophisticated preferences in the country.

This is creating demand for lifestyle products locally, including housing, growth of high net-worth individuals, safe haven investment factor and the presence of multinational firms has created demand for upmarket housing from expatriates.

“Prospective homeowners now have the chance to explore luxurious apartment-themed residential units which provide diversity from the usual luxury detached units thus, indulging in a new, affluent and unique user experience,” he said.

Demand for luxurious apartment is also being driven by the fact that real estate continues to provide a safe haven for high networth individuals. These investments offer a stable rental income and capital preservation, thus acting as a hedge against inflation and other market risks.

According to the World Bank, 35 per cent of housing supply in Kenya is in the high-end market and another 48 per cent in the upper middle-income market. In contrast, the highest demand is in the lower middle and low-income segments.

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