Real Estate

The gloomy future of real estate market

At Sep 16, 2016

The latest House Price Index published by the Kenya Bankers Association for the second quarter of 2016 is a reason to be sceptical about investing in real estate and the future of the property market in Kenya.

The 1.74 per cent increase of the HPI for the second quarter of 2016 compared to the 1.4 per cent rise during the first quarter reflected an uptick in house price, with the movement representing a not very promising future for the sector.

The property market performance of the first half of 2016 follows three years of very mild price changes. The demand and supply market dynamics have not been subject to significant changes over the period. The supply has been in response to the broad demand characteristics in the market. The new units being put up are mainly targeting the middle-end of the market, with the lower-end experiencing supply constraints arising mainly from the tendency of developers inclining more towards renting than selling.

Nairobi is the first area to feel the heat of the market. Investors in several neighbourhoods in the capital are feeling pressure from a slump in property prices and rentals as an obvious excess supply is creating new market conditions. With prices remaining stagnant in some areas and other areas like Kilimani producing negative results as selling prices have dropped by more than five per cent since last June, the property market dynamics are challenged. Mombasa on the other hand has been hammered from the drop in the tourism industry over the few last years. That directly affected the real estate sector.