Apartment prices rise in Kenya despite glut, low rental income

Apartment prices in Kenya have risen despite a slow growth of rental income, low uptake of mortgages and a glut of constructed units in the market.

It has been over two years since analysts raised alarm that there was glut of houses for sale in the Kenyan market, especially due to increased construction of apartments.

The apartments, some of which had been constructed for sale but were being rent out, led to further stagnation of rental income.

Therefore, it was expected that prices of houses would take a downward trend to correct the situation but this has not been the case, about two years later.

Instead, industry data showed that prices in the capital Nairobi continue to rise with a two-bedroom apartment going for as high as 97,087 U.S. dollars, from an average of 58,252 dollars about two years ago.

On the other hand, the cost of a three-bedroom apartment has hit 116,506 dollars, dwarfing even the price of bungalows and maisonettes.

Analysts said one reasons behind the rising apartment prices is increased demand from investors.

HassConsult, a real estate consultancy, in its latest report for the first quarter of this year, noted that apartment prices rose by 0.4 percent in the period due to sustained demand from investors.

On the other hand, prices for attached and semi-detached houses like bungalows and maisonettes went down 0.2 to 0.4 percent respectively in the anticipated election run-up as owner-occupier buyers stall on property purchase.

However, even as prices of apartments went up, asking rents reduced by 3.3 percent in the first quarter while that of detached and semi-detached houses rose 0.7 percent and 0.2 percent.

Antony Kuyo, a real estate consultant with Avent Properties in Nairobi, noted that apartment prices are rising because of higher returns.

"While the rent of apartments is lower compared to that of others, it is easier to rent out the houses than the others therefore making returns better," he said. "A three-bedroom bungalow can be rent out for about 350 dollars but an apartment would go for 250 dollars. The former therefore can stay for months without a tenant but an apartment will not."

He noted that many developers are paying extra attention to quality and presenting buyers with trendy houses that are luring more people.

Kenya's mortgage portfolio rose 23 percent in 2015 as the size of the loans increased by 386 million dollars, from 1.62 billion dollars to 2.01 billion dollars, according to the Central Bank of Kenya.

There were 24,458 mortgage loans in the market at the end of December 2015, up from 22,013 in December 2014. Average loan maturity for mortgages in Kenya is 10 years with a minimum of 5 years and a maximum of 20 years.

In 2000, apartments took up 24 percent of the market, semi-detached took up a similar portion while detached houses took up 52 percent.

However, at the end of December 2016, apartments took up 41 percent of the market, semi-detached houses 19 percent and detached 41 percent. Endit