Speculative buyers hit in property & land prices cooldown

COVID-19 related disruptions in real estate have halted returns to speculative buyers with property and land prices closing 2020 on a cool down.

According to HassConsult property and land indexes covering the year to December 2020 published on Wednesday, a majority of asking prices reached their saturation point in the year complicated in part by financing and demand constraints.

Overall property prices shed 0.2 per cent of values in the year while land prices registered an even bigger slump at negative 1.8 per cent on average.

Apartments registered the greatest slump in prices within properties at 4.6 per cent with markets in Kileleshwa and Kilimani seeing the greatest slides at 9.9 and 8.6 per cent respectively.

“We have seen markets move from steep price growth, in all ways a price boom, until it reached levels that buyers could no longer reach with roadblocks in mortgage finance and reduced liquidity from a global pandemic,” said Ms. Sakina Hassanali, Head of Development Consulting and Research at HassConsult.

In contrast, land prices in Nairobi suburbs shed 2.56 per cent in values while holdings in satellite towns fell by 1.11 per cent.

Suburbia land prices fell at their sharpest in Parklands (7.3 per cent) and Riverside (7.2 per cent) while Kiambu town led the collapse in prices of land holdings in satellite towns shedding 11.4 per cent in value.

“Kiambu County has in the last decade seen the most intense development in infrastructure, which put the county into a bracket of investment that was in a league of its own – attracting institutional investors such as insurance companies, SACCOs and real estate developers who bought large parcels of land for subdivision and further speculation. However, land prices in the county are moving towards a maximum of what the development market can bear, until we see a hike in economic activity and therefore some space for property prices to rise further,” added Ms Hassanali.

Property prices are subsequently expected to begin 2021 on a weaker footing as the economy continues to evolve out of shocks occasioned by the pandemic.

According to the Architecture Association of Kenya (AAK), the rebound of key segments in real estate will be slow and gradual as the residential sector for instance continues to feature defaults and restructures in payment cycles.

“A few defaults have been noted among the growing number of tenants using flexible rent payment platforms or those that have landlords willing to offer monthly and quarterly rental payments. On the property acquisition side, many payment plans for properties are being extended while the very small pool of Kenyans using mortgages may note difficulty in meeting payments due to salary cuts and layoffs,” AAK stated in its status of the built environment report published on Tuesday.

Nevertheless, AAK President Mugure Njendu says pockets of value still exist in segments such as industrial real estate on the back of the rise of e-commerce and local manufacturing.

“A lot of businesses have restructured their operations cutting out retail to rent out warehouses to store wares which they alternatively sell through e-commerce. Local manufacturing has also thrived from import constraints resulting in greater demand for warehouses and other storage facilities,” she said.

On her part, Hassanali expects the rebounding economy to anchor growth for the real estate sector even as she expects property prices to precede the recovery in land costs.

“Land prices will always be a function of property prices. When property prices increase, land becomes more valuable. This is the trend to look out for.”