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Why landlords love rentals

Nairobi’s housing market continues to thrive, if data from the Kenya National Bureau of Statistics is anything to go by.

According to KNBS, the value of approved home plans in the county rose by 115 per cent in the first half of 2013, while residential building plans increased to Sh51 billion compared to Sh23.7 billion in the first half of 2012.

Daniel Ojijo, chairman of Mentor Holding Ltd, a real estate consortium said the rise in approvals shows developers’ increased appetite for the sector.

However, the pace of non-residential construction remained flat during the period under review.

Non-residential

The value of non-residential building plans dropped marginally to Sh46 billion from Sh46.26 billion recorded in the first half of 2012. 

“The drop in the value of non-residential plans signals reduced builder confidence in industrial, retail and office properties,” he said. 

On his part, Martin Makau, a quantity surveyor said developers are now seeking investments that have a short term payback which residential houses offer.

In areas such as Westlands, Upper Hill, Hurlingham and Milimani, an acre of land goes for about Sh200 million, and coupled with the high construction cost, this means that it will take landlords a minimum of 20 years to recoup their investments compared to between 10 and 15 years in purely residential areas.

“Currently it costs about Sh40,000 to build a square metre of residential space compared to Sh60,000 per square metre of commercial space, making the former a preference for investors,” he added. 

Data from KNBS shows that commercial developers are shifting preference to residential houses due to the soaring land prices in the CBD and stagnating prices. 

The value of residential building plans approved by City Hall rose from Sh66 billion in 2010 to Sh154 billion in 2012, while the value of approved commercial plans dropped eight per cent to Sh57 billion in 2012, from Sh62 billion a year earlier. 

Office space

“The selling price of commercial space has stagnated at an average of Sh13,000 per square foot since 2010 due to increased supply of office space and shrinking rental returns. We have also seen most companies leasing buildings instead of renting them, thus stagnating the average rental asking price,” said Collins Otieno of officespace.co.ke, an online portal that specialises in selling office space. 

On the other hand, the selling price of residential buildings has been rising steadily for the past few years, thereby attracting more investors keen to tap higher returns. 

Sakina Hassanali, head of marketing and research at Hass Consult said landlords choose rental properties especially apartments as opposed to stand-alone units because values for town houses increased by 2.39 times since 2001, a 2.8 per cent rise in the last quarter and a 9.1 per cent rise last year. 

“From the 2013 report, there is a renewed appetite for buying, and comfort with the new price levels, offering relief for developers, many of whom were becoming seriously stretched,” she said.