Market outlook for year 2021/2022: Strong finish for the property market

The curtains are finally falling on the year 2021. If you are lucky to be celebrating the new year in your newly built or bought home, congratulations. Kudos too, to those who made their first, second or tenth investment. But before we open the new chapter, we have to dissect the year that has been and forecast what we should expect in the coming year.

The Rise of Affordable Housing

We have definitely witnessed some interesting trends in several sectors of the market. Stanley Hussein, a Property Expert says the highlight has to be the shift toward affordable housing. In 2020, the government introduced several tax incentives to both developers and buyers who invest in affordable housing. For instance, developers would pay 15% corporate tax instead of 30% if they built a minimum of 100 affordable units. Stamp duty was scrapped for first time home buyers and Value Added Tax was also tossed out for construction supplies, as long as the developer’s affordable housing proposal is approved by the National Housing Corporation. When importing construction materials, the developer would also enjoy tax incentive. Hussein above, explains that these perks- which are part of the Big 4 Agenda lowered construction cost and opened investor’s eyes to the niche and many of them shifted their focus from the high-end market. Throughout the year 2021, various private developers have launched affordable properties in various locations- affordability being defined as -properties sold below the market value. You would find an apartment selling at less than 5 million in a market that’s primarily dominated by middle or luxury properties.

This shift enabled the property market to roar back to life, given that in 2020, the sector was hit by the pandemic. While there is an increase in affordable properties in the market, Hussein however, argues that we still need to re-define affordability.

“A studio selling for one million may sound affordable or even cheap, but how many people within the target market have 1 million ready to buy anytime,” he posits, adding that affordability should be aligned with what target buyers can afford in terms of rent. “Rent to own schemes whereby people pay for instalments similar to their rent rates would probably create an equal opportunity for everyone to own homes,” he says.

End of Speculative Buying?

Another key trend, as Hussein notes is the decreasing popularity of speculative buying. For years now, property investors have been buying several pieces of land and “sitting on them” until prices hike and they resell or develop. This trend is slowly dying as younger investors seek quick returns rather than long-term gains. “A lot of modern investors are in the business of time. If they buy a house for rental income, they want their returns within the first eight years as opposed to the traditional wait time of 12 years,” explains Hussein.

He attributes this change in attitude to the pandemic period when people realized they may not have 10 or 20 years to speculate before building homes. Sudden changes in the economy can render one jobless, hence the need for a home as soon as one can manage to build. For this reason, plots that are ready for building are moving much faster.

Still on the housing market, Hussein notes that studio and 1-bedroom apartments have become quite popular among buyers. In a development with a blend of these two types of units and larger family units, the studios and one-bedroom units with always sell out faster. Sometimes they sell out before ground breaking.

This demand is driven by the booming, furnished apartments business. It offers good returns to investors compared to the long-term rental market. To put things into perspective, imagine buying a two-bedroom apartment in a prime location for Shs.7 million, then renting it out for Sh30,000 a month.

It will take close to twenty years to regain your initial investment. If you were to buy a studio for 3 million in the same location and rent it out as a furnished vacation rental for Sh2,000 per night, you make Sh60,000 if you are fully booked for a whole month. Essentially, earn more profit with a studio apartment despite spending less.

Lastly, Hussein notes that infrastructure has been a key factor in real estate growth. Lots of new locations within other counties (other than Nairobi) have opened up. He however argues that the housing market not only relies on infrastructure but fast and reliable transport systems.

“You can have as many affordable houses in the suburbs, but people will still want to get to Nairobi for work and other businesses. It is probably high time the government looked into investing in advanced transport systems such as electric trains,” he says.

On the year 2022, Hussein is confident that the property market is finally mature enough to get through the election period gracefully. While some vulnerable locations may experience less transactions, it is likely that the housing market will go on undisturbed during and after the elections.

Increased Loan Uptake

It’s hard to talk about the property market’s outlook without looping in the finance sector. The two are interwoven as most property investors rely heavily on financial boosts from credit institutions. The previous year 2020, set a precedent when most financial institutions provided relief to borrowers through moratoriums and other programs. Perhaps this boosted the relationships between lenders and borrowers. “Initially, we introduced loan moratoriums to provide relief for those members whose means of income was affected by the various lockdowns in 2020.

We also provided loan restructuring to those members who experienced challenges with servicing their loans and because of the reprieve given to them, a large majority of borrowers are now servicing their loans as per the norm. Of course, you must always account for delinquencies here and there, but things are looking up,” says Stima Sacco Chief Executive Officer Dr. Gamaliel Hassan adding that their loan book has grown by 11.16per cent  between November 2020 and November 2021 with vast majority of current property borrowers focusing on financing for construction projects (both for personal and business use) followed closely by land buyers and then home buyers.

The finance sector has also been part of the affordable housing agenda. When mapping financial incentives, the government set up the Kenya Mortgage Refinancing Company (KMRC) which was to lend funds to backs and saccos. The financial institutions would then provide mortgage financing to low-income earners at a subsidised rate of less than 9 per cent contrary to the usual 14 per cent or 13.5 per cent. KMRC went on to partner with multiple banks and saccos from December 2020- a move that might have boosted uptake of credit among real estate investors.

“It is expected that more partnerships, such as between us and KMRC, will come along going forward. Such will increase access to affordable housing. We also hope that the titling and collateralisation process will be streamlined to ensure speed and efficiency,” says Dr Hassan.

CBD’s Commercial Real Estate Rises from Ashes

Rental properties located within the Nairobi’s Central Business district have been the talk of town since people started working from home. For a minute, the CBD began to look like a ghost town as people abandoned office spaces. This spelt doom for businesses relying on the everyday professionals who work in the CBD. Businesses began to close down and many thought, it was the end of commercial real estate in this part of Nairobi. Surprising, the market has bounced back as though it never took a hit.

Malcom Oyugi, a Nairobi based entrepreneur explains, the commercial real estate in the CBD has always been stable because it is controlled by contracts and lease paperwork, unlike smaller markets where verbal agreements are enough. “Before setting up shop we have to sign a lease contract which covers up to five years.

The paperwork keeps the market in check,” he says. Hence when things got tougher, businesses devised clever ways to deal with the impact. “When people began losing jobs or working entirely from home, sales went down for certain types of businesses such as eateries and bars. Small entrepreneurs too were affected and some decided to partition their business premises so as to slush their rent by half,” explains Oyugi.

Rental shelves also became popular for smaller businesses that either moved online or new businesses that resulted from job losses. These survival tactics kept the commercial market afloat and it eventually bounced back. Oyugi explains that even though businesses closed at a fast rate, others were created at a similarly fast rate.

There may never be a time when people run out of entrepreneurship ideas. The tough period seems to have been a passing cloud- which prompted entrepreneurs to adjust. Besides, a lot of corporate businesses have accepted Covid-19 as a challenge we are living with, and professionals are back to their usual offices. After trying to work from home some realized that it is not as rosy as it seemed and now a trip to the CBD is a welcome thought after all.

Finally, we cannot conclude a market outlook article without making some honourable mentions such as the Ardhi Sasa platform which is set to revolutionize land transactions in the country.

The online platform, an initiative of the land’s Ministry was Launched in April this year by President Uhuru Kenyatta. A digital registry has always been a distant dream for many investors but it became a reality in 2021. We can only hope that the platform will speed up transactions, curb fraud and improve security of records.

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