A lot of water has passed under the Kenyan economic and political bridge in the past twelve months. The current optimism being witnessed is a complete contrast to the extreme uncertainty that characterized Kenya’s economic environment in December of 2010. Most real estate agents and Managers will bear me witness that the general property market had become stagnant by the end of 2010. Similarly the level of trading activity at the Nairobi Stock Exchange had hit rock bottom. However as soon as the elections were over and a new government in place, trading activity at the stock market increased almost instantly. This did not happen in the property market. Since real estate decisions take time to make and involve large capital outlays one may understand why the activity did not pick instantly. Another explanation to this is the lag period that is expected after a change in economic factors before any tangible effects are recorded in market activity.
By the end of April some improvements in specific property market sectors, had been recorded. Although there is a large supply of office space in Nairobi currently, many property managers will tell you that they got a few new tenants in the first four months of this year. The corporations which were not sure of whether to commit to lease contracts last year have now gained enough confidence to seal the deals. This market largely remains a buyers (lesees) market because of the oversupply of space. Out of the CBD offices remain more attractive than those in the CBD largely because of the parking and traffic congestion problems. There is hope that the resumption of government funding by international development agencies and implementation of new government policies will generate substantial economic activity which will in turn increase the effective demand of office space.
Demand of low income residential housing in Nairobi outstrips the supply. The deficit is so large that even shanties attract rent. The government has pledged to provide at least 150,000 new housing units every year. It is our hope that these units will be targeted to serve this market. Even with this kind of development it will take many years before the deficit is eliminated due to the high rural-urban migration.
The middle income market is quite active although the activity is far from optimal. The real incomes of the group that is attracted to this sector has not increased. The tax burden on this lot is still heavy. They are the ones hardest hit by the economic recession witnessed in the last four years.
If the finance minister addresses the issue of unfavourable taxation policies, the burden on this group will be made less and this will release some income that can be spent on housing and other investments. The moves by mortgage houses to make credit cheaper will also enhance activity in this sector.
The market remains in favour of buyers (lessees). If one has money now and wants to invest in housing then this is a good time. They can get the best value for their money.
The situation in the high income residential market sector is quite different. There are many vacant houses and few people seeking either to rent or purchase. Currently the buyers in this market almost dictate the terms of purchase. If the optimism in the market is converted into tangible economic activity and there is influx of new investors then this market will benefit.
Generally it is expected that the property market activity will gradually increase in the next two years reaching a peak by the third year all other factors being constant. Attempting to predict what will happen after that would be a futile exercise given the impacts that electioneering normally has on economic activity in Kenya. In the meantime I would encourage those with the quid to go out and buy since this is their time.