Kenya dominates East African property market

Kenya dominates East African property market

Significant growth in East African property market is possible without a massive increase in borrowing and mortgage debt.

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Significant growth is possible without a massive increase in borrowing and mortgage debt.

Overview

Kenya is not only the transport and economic center of East Africa but as Nairobi continues to grow it is seen as a very strong and exciting investment opportunity with huge potential.

Historically the housing market in Kenya has been dominated by colonial style villas occupied by the privileged and wealthy, whilst the majority of the rest of the population have been forced to live in aging bungalows or packed slums on the outskirts of cities, predominately Nairobi. In the last decade however this has started to change with the development of a multitude of soaring apartment blocks.

Investors keep coming

HassConsult – a property firm in Kenya, have said that whilst the ‘high end’ of the property market which saw a significant uplift between 2006 – 2008 has now slightly slowed, the number of people investing in the country continues to grow as the stability and infrastructure of the country improves. Kenyans themselves are also in a hurry to own their own property, this is not however being achieved as a result of a mortgage boom as the vast majority of people don’t have a mortgage due to exorbitant interest rates, starting at 15%. Extended families are in fact accomplishing this by ‘pooling’ their savings together allowing them to buy a property outright.

Whilst no one is absolutely sure where most of the ‘external’ investment is coming from, there is little doubt that the flourishing property market and resulting inflated house prices are partly due to the investment of some insalubriously obtained money. Many people believe his money could be coming from corrupt rich Somalis, who no longer have any confidence that keeping their funds in foreign bank accounts is secure.

Real Estate Investment Trust (REIT)

A REIT is a company that finances or owns revenue making real estate, including apartments, industrial facilities, hospitals, shopping malls, offices etc. They allow anyone to invest in big property portfolios and then earn a % of the portfolios revenue, they work in a similar way to how investors make their money when buying and selling shares on the stock market. Some of the other big benefits of the REIT’s system are that new property companies don’t pay tax when they list, there is no capital gains tax on purchases, and debentures are considered tax deductible expenses.

The REIT structure has recently been implemented in Kenya and further REIT’s are anticipated to be listed on the Nairobi Stock exchange in coming months

Since 2013, the REIT structure has helped to make South Africa’s property market the envy of many other countries. REIT laws have now in fact been adopted by over 30 countries and are credited with generating significant incomes for investors.

Significant growth

Although this type of growth in a property market, a fourfold increase since the early 2000’s, is often at risk of being followed by a collapse, the fact that Kenya’s property market is not underpinned by high levels of borrowing and debt, means that a crash seems unlikely. There is however expected to be a decline in the growth of the commercial property market as surrounding populations and their disposable incomes are too low to support anymore additional shopping malls etc. This decline is yet to be seen, in fact in 2015 a $540m development was built and in February 2016, ‘Old Mutual Property’ committed to invest a further $6.3m to build a new mall on a 10.2-acre plot of land in the upmarket diplomatic blue zone of Gigiri and Runda.

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