UNVEILING KENYA’S REAL ESTATE LANDSCAPE:
A STUDY ON TRENDS, STATISTICS, AND PREDICTIONS IN KENYA STATISTICS
Article by: James Wallunya
Date: Wednesday, 14th May 2024
The growth of Kenya’s residential real estate market is driven by several demographic factors, such as rapid urbanization, a growing middle class, and youthful populace. These factors have significantly influenced housing market dynamics. Consequently, the demand for housing in Kenya increases by a total of 250,000 units annually. However, the formal market is only able to deliver an average of 50,000 units per year, resulting in a cumulative housing deficit of 2 million units.
The existing housing stock comprises of three primary typologies: 1) apartments which account for 57.9% of the current stock, 2) semi-detached houses which make up 32.6% of the housing units, and 3) detached houses which represent 9.5% of the total supply. These units cater to three distinct market segments as outlined below:
- Low-income segment (2% of the existing stock) – these include housing options with few or no amenity options, small sizes, and basic finishes. The government defined price range for low-cost housing should not exceed a value equivalent to two hundred times the current statutory minimum wage (KES 19,830), as such the price for these units typically should not exceed KES 4.17 million, while their sizes may range up to 50 SQM.
- Middle-income segment (48% of the existing stock) – these include housing options with better quality construction, more amenity options, recreational facilities, comfortable sizes as well as standard to premium finishes. The price range for these units ranges up to around Ksh 20 million, while the sizes may range up to 100 SQM.
- High-income segment (35% of the existing stock) – these are housing units with luxury and high levels of comfort, deluxe finishes, premium amenities, high-end facilities, and large sizes. The price range for these units ranges from Ksh 20 million and above, while the sizes may range to over 300 SQM.
Notably, there is a significantly low supply of housing options for low and lower-mid income households. This has led to approximately 56% (or 6.4 million) of the urban population to reside in informal settlements that are characterized by overcrowding, insufficient infrastructure and lack basic services such as electricity, water supply and sanitation. In addition, there exists formal substandard housing units, that are poorly constructed, lack essential amenities and create inadequate living conditions for its occupants. Cumulatively, the qualitative housing deficit (current housing deficit plus the number of sub-standard homes) is approximately more than 4 million units. In Nairobi, 60% of the population resides in slums (against a national average of 56%), while approximately 14, 895 buildings across the city are sub-standard and unsafe for occupation. The average cost of a house in Nairobi is KES 11 million, however, 90% (or 9 in 10 persons) of Nairobi’s residents are renters, because this price is out of reach to them.
Trends
The current housing landscape has sparked extensive discussions on homeownership in Kenya with focus on three key aspects: 1) affordability, 2) availability of cost-effective financing and 3) documentation of ownership and tenure security. These factors constitute the fundamental pillars that underpin housing development trends in Kenya, as explained below:
- Housing Affordability and Financing
Homeownership ranks as a top economic and personal goal for many Kenyans. Yet, a considerable number of Kenyans are unable to afford to buy or build their own home due to poverty (with a national poverty rate of 29.4%), limited access to financing and the high cost of construction. It is estimated that over 61.3% of Kenyans own their homes. However, the average homeownership rate is lower in urban areas, where an average of 21.3% of dwellers own homes while 78.7% rent. In Nairobi for instance, 90.6% of the residents are tenants. Typically, Kenyans acquire homes through three main ways: inheritance that accounts for 15% of homeownership journeys, purchasing which represents 17% of homeownership journeys and construction, which constitutes 68% of homeownership journeys. Construction is a popular choice for acquiring a home primarily because it offers room for customization and is perceived as an affordable option that allows flexibility during the project, based on an individual’s financial availability. However, an assessment of construction costs, which include land costs which account for 23.4% of the project value, infrastructure costs that make up 14.5% of the total costs, licences and approvals amounting to 2.2%, constructions costs which constitute 41.4% of the project costs and other development costs that total to 18.5% of the overall project costs, denote that construction is mostly affordable where land and infrastructure are readily available for development.
The affordability of housing is directly impacted by the expenses associated with constructing and/or purchasing units. Property values in Kenya have increased by 4.87 times since the year 2000, due to high costs of construction inputs. Additionally, property prices have also increased due to the scarcity of shovel ready plots, that have established infrastructure, such as access roads, sewer provisions, water supply, and electricity, extended up to the plot boundary, to facilitate development. In such cases, developers are obliged to finance and/or develop the installation of infrastructure and then transfer the associated costs to clients, thus increasing the cost to build or purchase properties. In addition, the value of both land and houses has also increased over the years due to an increase in demand, infrastructure development and urbanization. This implies that, over time, a higher capital investment will be required for aspiring homeowners, thus compounding the challenge of achieving homeownership.
To address this situation, stakeholders such as government, the private sector and financial institutions have responded in a myriad of ways. Notably, the Government of Kenya (Gok) has implemented both policy and program initiatives aimed at enhancing the affordability of housing across the country. A prominent example of this can be seen through the Affordable Housing Programme (AHP) which is one of the five (5) pillars of the Bottom-up Economic Transformation Agenda (BETA). The program aims at delivering at least 250,000 units annually, as well as increasing the availability of housing for the low-income market segment, from the current 2% to 50% by the year 2027. Addressing the supply of low-income housing is important because the current annual supply as well as the annual pipeline of 50 000 units predominantly caters to the middle to high-end market segments. Further, AHP provides incentives to private sector developers of affordable housing units, with the objective of lowering construction costs to reduce the price of purchasing a unit by up to 50%. Such incentives include the provision of public land for construction of affordable housing units, infrastructure development, waiving application fees for statutory permits and approvals as well as tax exemptions or breaks on inputs and corporate tax. Lastly, Gok is also providing infrastructure support within residential nodes through the Kenya Urban Support Programme (KUSP), to reduce the capital investment needed for real estate development.
As part of the initiatives to access to affordable financing Kenya Mortgage Refinance Company (KMRC) was established to offer long-term funds to primary mortgage lenders (PMLs) such as banks and saccos, for onward lending to homebuyers at single digit rates. By September 2023, KMRC had refinanced a total of 3,142 mortgages valued at KES 9.567 billion through twelve (12) PMLs. The average interest rate for KMRC backed mortgages is 9.5% (while the market average for commercial mortgages is 12.3%) with a tenor that extends up to 25 years. In addition to improving affordability, KMRC is also developing mechanisms to increase the number of qualifying borrowers, such as de-risking person from the informal (jua kali) sector.
Another financing related initiative is the Tenant Purchase Scheme (TPS) by the National Housing Development Fund (NHDF). TPS is a lease-to-own financing model where the client makes a down-payment of about 10-15% of the price of a units, and thereafter makes monthly payments of an amount that is approximately equivalent to the unit’s rental price over a period of 10 to 15 years, with at fixed interest rate of between 13% and 15%. The requirements of the TPS also mandate that monthly payments should not surpass 30% of an individual’s income, and that the title of the property be held by the seller until the both the principal and interest amount is fully paid. It’s crucial to emphasize that the TPS scheme relied on a mandatory 1.5% contribution from all formally employed Kenyans. The monies would be collected through a housing fund for use in the development of housing units under the TPS scheme. However, the collection of the contributions was halted by the courts due to legal actions initiated by trade unions and activists. Nonetheless, the TPS scheme has previously been successfully implemented by government agencies such as the National Housing Corporation (NHC), the National Social Security Fund (NSSF), and the Housing Finance Group. For instance, NHC has delivered over 9,074 units through the TPS program, proving that it is tested way to promote both homeownership and financial inclusivity.
- Documentation and Tenure Security
Homeownership is not complete without documentation and tenure security, nevertheless, approximately 68% of Kenyans lack essential land documentation or tenure security.
Predictions
The growth of the middle class has redefined housing requirements by Kenyans. As such, there is a growing demand for amenities, security, convenience and lifestyle as well as focus on operational priorities that could determine the quality of life.
This has also led to the emergence of sustainable mixed-use development in satellite and peripheral towns, which are supported by privately-owned infrastructure. For instance: the Two Rivers development built its own roads, water, and sewage systems. In other cases, the government might choose to fast-track infrastructural development to promote investments. A good example is seen on the cases of the Konza Technopolis in Machakos County
Kenya is unquestionably a regional business hub with multiple multi-national corporations choosing to set up their headquarters in the country. As a result, a large part of our prime residential rental market is linked to expatriates who work for these companies.
In conclusion, the real estate landscape in Kenya is characterized by a deep unmet market pool for affordable housing.
As Centum Real Estate we strive to master develop urban nodes in East Africa transforming areas into places where people want to live, companies want to grow and neighbourhoods come alive in a quest to fill the unmet market pool.
Presently, we oversee a land bank exceeding 8,000 acres, with ambitious plans to unveil numerous residential complexes across East Africa. Our portfolio boasts over 10,000 residential units, with over 1,000 homes already entrusted to their owners.
For comprehensive information on our projects in Nairobi and Kilifi, Kenya, or Entebbe, Uganda, please reach out to our team via email at centum.re@centum.co.ke or provide your details through our contact page here.
Edited by: Frida Nthoki- Marketing department.