Hi all,
just to challenge conventional wisdom on property(no price is too high). i did the post below.Let me know your views on the property market.

Nairobi Real Estate bubble bursts

It happened sometime towards the end of 2009.The bubble was concentrated in the upper to high end property market.i.e. houses above Ksh 10 million.Unlike, other markets Kenyans have never experienced a large scale property price decline or slump.
Signs of the high end property slowdown are:

-Property sellers not providing indicative prices
Take a look at the property supplements in the thursday newspapers in early 2009 and 2008.Sellers provided indicative prices for every property offered.Currently, property listings beyond Ksh 10 million have Price on Application(POA) instead of an actual price.POA indicates that the sellers are unaware of the ruling prices for the relevant property prices.Hence, they wont quote an indicative price for fear of over bidding the market and failing to sale or underbid the market and sell for less than the market rates.

-Compression of rental yields
Looking at the indicative rents around Kilimani,certain areas in Lavington such as Valley Arcade you can see that indicative rents have stagnated around the Ksh 60,000-65,000 range or lower for the desperate landlords.Areas, such as South B/C,Langata and West are seeing a stagnation of rents i.e. rents rising at less than 10% per annum.

-Rise in furnished apartments
To counter falling/stagnant rents savvy landlords are offering furnished apartments and houses.Ideally a furnished apartment rents at least 30%-50% higher than a similarly unfurnished unit.To furnish an apartment that you can go for Ksh 70,000-Ksh 90,000 a month wont cost you more than Ksh 200,000.The extra Ksh 20,000-Ksh 30,000 from furnishing can be recouped in less than 12 months.Furnished apartments have also seen a decline in rents a furnished 3br unit in Upper Hill used to be Ksh 120,000 now its around Ksh 90,000.

The factors that led to the real estate slump were:
-Oversupply to a narrow market segment
Most developers were focusing on the Ksh 10 million and above units because thats where the high margins were.In the end they oversupplied it.The slump has led developers back to the Ksh 5million-Ksh 8million segment.VillaCare and all those high rollers have projects for that price range on going.

-Consumer sophistication
Property buyers in the late nineties and early 00s were thrilled by the property location they didnt care about the finish or quality of the property.i.e. people were happy to buy property in Kilelelshwa it didnt matter if the finish was poor.Thats how the area around Kileleshwa Police station and Kenton College ended up looking like Umoja with a lot of flats/apartments.

Over the past three years people buying/renting high end apartments have developed minimum requirements.i.e. if someone is going to buy a Ksh 10 million apartment or rent it he requires: at least two allocated parking spaces,back up water supply e.g. borehole or large reserve tanks, large living space, good security lay out and recently a servants quarter is a must.If your apartment doesnt have these facilities, renting/selling it at the higher end of the market ruling price is tough.

-Alternative choices
Real estate buyers in Nairobi started questioning the wisdom of buying an apartment at Ksh 9,10 or 15 million when that amount could buy an acre or more of land around the city.The odds of land values rising are higher than a Ksh 10 million apartment doubling in price to Ksh 20 million or even rising to Ksh 15 million.

-Bank lending
The risk aversion among local banks led to a slow down of lending for mortgages and development towards the high end units.Leading to fewer clientele for the finished property.By the way i see banks fronting for several property sales through newspaper ads.does that indicate their exposure to the sector?

-Normal supply of units for sale
Regardless of existing market conditions(whether boom or slump) property is always on sale.People who need to sell property are ready to take lower prices because they need the cash.On the other hand existing property owners who have a large capital gain will sell to cash their gains.e.g. if you bought the first Apartments in Lavington/Kileleshwa in the late nineties you got in at between Ksh 4million-Ksh 6 million.Even if the current market is tough, Ksh 8 million to Ksh 10 million can be raised..more

Your signs that indicate bubble has burst in upper/high end property market are plausible:
-Property sellers not providing indicative prices
-Stagnation of rental yields
-Rise in furnished apartments as a counter


'Property is overvalued' words have been a mantra of 'madmen'; no one has had reason to pay heed thus far. As with all things, time will tell.

If this bubble loudly bursts in our folks life time, no words will explain the palpable shock!!!

A new trend is emerging which is going to cause some areas to crash and other areas to appreciate. The haphazard planning of our city is to blame. We now have commercial buildings being built next to residential houses. For this reason, owners are selling and looking for areas that are residential only. Traffic jams are also a factor as getting tenants to who will live in such areas is difficult. Owners opt to invest elsewhere.

Mmhh very interesting

I came back and found 3 of my neighbours houses are for sale. Another 2 don't have anyone to rent. My house is not in the leafy suburbs but its something to ponder

@ John P

Not all apartments within one block are rated the same by buyers. There are those choice apartments which could be the top floor etc, based on the local conditions. An unattractive apartment on the ground floor or next to the road etc may mean that the selling has to go on. Moved in somewhere last year in may and two flats on the ground floor are yet to be taken. Majority of the flat were bought in no time.

@ Intellegentia

The council had stopped development in these areas to come up with a policy 5 years ago. The now charge a development levy equal to 1% of the development cost for infrastructural development. Despite collecting these levies, the council has done nothing. It is also a pity to see concrete jungles coming up in the once leafy areas. I understand the Ministry of Local Government is the one raising concerns about the planning and not the council. Let us face it, we have to cater for a growing population and growing economy. The collateral damage is that the trees have to go.

@All why is no one talking about the cost of building versus price of the units? The way I see it, as long as the units are not overpriced, there can be no bubble. The availability of easy credit over the last 5-8 years esp for mortgage financing is the cause of the rapid growth in this sector. As an investment, avenue with the decline of stocks and their association with the global recession it remains a better avenue so far.

@Nyquist:True dat, very few nairobians can pay rents above Ksh 50,000.most houses with these levels of rent always mention a servants quarter -Not for your domestic help. but to reduce your effective rent.

@all: Land is an extremely controversial and emotional issue.No more of the stuff is being made.Most peoples entire net worth is in their house/land.However, it is possible to pay too much for property and fail to generate a sufficient return.Thats what has/is happening in some parts of Nairobi and Mombasa.

@Rahatupu: 5 years ago an Acre in karen was Ksh 5-6 million, so was a 3 br apartment in Kileleshwa.Today an acre in Karen is Ksh 15-20mn. The apartment is Ksh 7-9 million.Wouldnt you have been better off renting and buying the acre?.If you bought a townhouse apartment at Ksh 15 million today, how likely is it to be Ksh 30 million in 5 years and will rent rise from Ksh 80,000-Ksh 90,000 now to Ksh 160,000-Ksh 200,000 then? I dont think so?
IF U BUY right priced property you make a kill overpay and poverty will stalk you e.g. CASH poor ASSET rich

@Intelligentsia:The scenario played out in Kile in the past two years.

@FundamentAli: You are right about buyer preferences.The same prefs are now playing across entire locations.Just look at the valuation differences between Valley Arcade,Ngong road-junction and Lavi-proper for the same units.

@all:I could pull some real life examples of nbi property that was overpaid and prices stagnated for a couple of years.

Good people,

I think that there is no property bubble in this market as such. I find it a play of effective demand and supply. Let us recognise that for a long time housing was NOT affordable to ordinary Kenyans due to the laws that existed. The creation of the law that enabled owning of flats was very welcome.This coupled with the availability of funding from banks drove up demand. However, when the banks slowed down lending, the effective demand declined. Well unfortunately, alot of the young people ( 25-40yrs) in this country are the most indulgent in conspicous spending. It is normal that when some new product hits the market, especially in Kenya, the marketers advise for the strategy to reap most returns first. Housing is no different. The prices will rationalise but I can assure you not to wait for a burst! We are nowhere there.

@ Nyquist ;There is no way an average mwananchi making an average salary of Ksh100,000'
I don't think the average mwananchi earns this much in Kenya. Probably about 20K max. And these houses are not meant for that market.


Sorry guys, I just thought we needed some reality check. You will be shocked to learn that most of the houses in these markets are bought 'cash' as 3rd,4th and even 8th houses!
Of all the houses you saw vacant, how many have been repossesed for lack of payment? very few. These guys were not investing for today such that they need the rental money to repay the mortgage. Banks demand that you can afford to repay the house even without rental income unless it is a flat construction loan which the rental income must far exceed the loan repayments and minimal rent.

I see articles especilly in the Standard proclaiming the burst. Can the editors, do proper research first? You do not shout down prices!Only effective demand does.

I see the next front of opportunity in housing coming from the enactment of the law that changes the buidling materials and this will bring down prices but not in Kilimani, Kileleshwa etc.

pizza - the upper class market can be represented as this...in 2005 there was 1 small pizza being distributed to about 10 people... knowing there were 8 slices on the pizza some people were ready to grab a slice at the counter before it reached the table... in 2010 the pizza is bigger (medium size) it is also more pricey per slice and some people are willing to let the others pay for that today and wait for a 'friday' (for the all you can eat promotion)...
the problem occurs when 6, 7 or 8 people are left to share the pizza with 8 slices... hence in some locations a property may fail to completely sell out... but the all you can eat promotion will never occur (read - bubble).. a bubble occurs where there are 3 large pizza and about 8 people to eat... some people take more slices of pizza than they can eat... hold it hoping someone else is going to pay more to have their slice... then the pizza shop guy comes asking for his money...

- most kenyans however need chapati... low cost... available everywhere... you do not have to share... you only share when you are very young (one of the things i do not understand about 'potential' property buyers is the assumption that a house should be cheap.. if you are going to live in a house for about 10 years... why would you want to be able to pay for it in a day???) chapati is convenient and available in many places and its cost varies according to where it is served to you e.g. aroma restuarant (mavoko), k'osewe (south-c), kula korner (kilimani)... in the chapati market you can eat 2 or 3 before you have had your fill...
this post is also confusing me... i will try elaborate later...

advisory.. the following statement may be demeaning to some parties...

the discussion about a property bubble is mundane and should only be left to persons reading western media without understanding underlying concepts and principles...

show me examples of property bubbles in the third world say brazil or india and i will finally ascribe to the half-chance it will occur in Kenya before vision 2030 achieves fulfilment