Investors shy away from buying old upmarket homes
Investors buying old homes in leafy Nairobi suburbs for redevelopment are increasingly finding it hard to make money from subsequent investments due to inflated prices, a new survey by the Kenya Bankers Association (KBA) shows.
The KBA said in its first quarter 2015 housing price index report that demand for such houses is also softening even as they become scarce forcing apartment developers to look elsewhere.
The demand for land by apartment developers has led to an inordinate increase in prices of old houses in suburbs such as Kilimani and Kileleshwa, where an acre can cost up to Sh300 million.
According to the KBA, there is a link between the prices of old bungalows and the price of apartments.
This is because buyers are taking up new apartment’s off-plan, meaning the effect on pricing is felt almost immediately an old house is knocked down for redevelopment.
“Whereas the older houses—particularly bungalows—were in high demand in the last two quarters of 2014, we are seeing that softening during the first quarter of this year, an indication that as they become scarce, the market is moving away from there,” said KBA director of research and policy Jared Osoro.
“The cost of such property especially on the speculation around the land on which they sit is being given a very careful consideration by investors, who are considering critically the viability of any development arising out of this land. This is unlike previously where they used to enjoy a windfall from these developments.”
Nairobi has seen a wave of apartment developments in areas previously populated exclusively by stand-alone homes on very large compounds.
This has come with relaxation of the city zoning laws to cater for a rising population amid a housing shortage.
HOUSE PRICES ROSE
The KBA survey covers 21 different towns, using data from commercial bank mortgages and the National Housing Corporation (NHC) to compile the index.
Overall, the KBA found house prices went up mildly between the last quarter of 2014 and the first quarter of this year.
The index, which started with quarter three of 2014 as its base (100 points), stood at 104.99 points at the end of March, compared to 102.18 at the end of December 2014.
This means, for instance, a house costing Sh10 million in September 2014 would have seen a price increase to Sh10.218 million at the end of December, and to Sh10.499 million at the end of last month.
“This increase is in line with the cost of construction materials and cost of land. Maisonettes and bungalows have had price stability in the quarter, pointing to the fact that apartments account substantially for the price movement that has been observed,” said the KBA in the index report released on Thursday.
In the previous two quarters, higher house prices were driven more by bungalows, with apartments and maisonettes stable.
In terms of specific attributes of houses that determined pricing, KBA found demand was driven by house sizes— the number of bedrooms and bathrooms, and presence of a backyard and servants quarters.
Households were also more discerning on convenience and security.
“Ease of access to social amenities and preference for gated communities speak to the search for convenience and security by home owners,” said the KBA.
Supply in the housing market is, however, still skewed towards the middle and upper classes, with lower income households experiencing constrained supply.
In their fourth quarter 2014 ownership index, real-estate firm Hass Consult found that the average monthly repayment needed to buy an apartment in an upmarket Nairobi neighbourhood stands at Sh140,000 a month, a figure that is way above the salaries of most workers.