Covid-19: Land prices fall, rental income expected to decline

The Covid-19 pandemic has reduced investor speculation on the appreciation of land prices leading to the lower setting of prices, a new report shows.

The report by Hass Consult covering the first quarter of 2020 shows a softening in land prices by 0.9 and 0.21 percent for parcels in Nairobi suburbs and surrounding satellite towns.

Meanwhile, property prices registered a marginal 0.9 percent rise in the quarter supported in large part by the valuations of detached and semi-detached housing with the best performing nodes including Gigiri, Runda and Loresho

“With the global economy experiencing unprecedented fluctuations and declines, investors are displaying caution and delaying purchasing decisions in the absence of market stability,” notes the report in part.

Higher land price discounting was registered in Riverside, Gigiri, Kiserian and Langata while areas such as Muthaiga, Spring Valley and Kitengela defied the trend of corrections to register a spike in valuations.

Further to the ease on land speculations, Hass Consult Head of Research Sakina Hassanali expects distressed landowners to liquidate their holdings leading to a greater supply of land during the pandemic to further accelerate the reduction in prices.

“The supply of advertised land is likely to go up as people move to liquidate their holdings to free up cash. On the other hand, individuals are more likely to hold on to other properties due to their income earning status,” she said.

Rental yields are expected to decline significantly from the 1.61 percent margin in gains made over the first quarter as Kenyans plead with landlords for rent suspensions and moratoriums as a coping mechanism from the economic impact brought about by the global health emergency.

Already geographical areas including Ngong, Kileleshwa, Riverside and Tigoni registered significant rental declines between January March setting the nodes on further rental yields deceleration.

Even so, both land and properties are expected to retain their allure over the long-term supported in large part by the static nature of the investments.

“Property prices tend to stay static during volatility even as volume sales drop. This is because fewer transactions present fewer opportunities for prices to change” Hassanali added.

Lower land prices are expected to net new buyers who would have otherwise been out of the pricing range prior to the pandemic.

The heat on the real estate sector from the Covid-19 pandemic is expected to be more profound at the end of the second quarter.