Why Nairobi is one of Africa’s most expensive housing markets

Runda estate Nairobi

Runda is one of the most expensive estate in Nairobi. PHOTO/FILE
Nairobi has been ranked by the World Bank as one of the most expensive housing markets in Africa, with the cheapest house now going for nearly ten times its price in 2000.

According to the World Bank, prices of homes in Nairobi have gone up ten times since 2000.

This has rendered 90 per cent of Kenyans incapable of purchasing the cheapest home in the city, which is currently priced at Sh4 million up from Sh500,000 at the turn of the millennium.

“In 2013, prices were nearly three times those of 2000, creating fewer opportunities for middle-income families.

“Besides, the lowest priced house already cost Sh1.3 million in December 2012, and currently, there is almost no supply in the market for homes priced at less than Sh4 million,” senior World Bank economist Allen Dennis said during the release of the Kenya Economic Update in Nairobi on April 12.

Due to the high cost of housing, at least 60 per cent of those living in the Kenyan capital and other major cities have been pushed into informal settlements.

So, who is to blame for the rising cost of homes? Well, there is no straight answer to this question, but to a large extent speculators have manipulated the entire real estate ecosystem.

Land, the most critical element in housing, has been overpriced by speculative dealers who have employed countless gimmicks to lure people in to buying costly plots.

Upmarket estates

According to a report by property consultancy HassConsult, prices of land in Nairobi have more than quadrupled in the last eight years from an average of Sh30 million an acre in 2007 to more than a whopping Sh170 million today.

The selling price of an acre of land in upmarket estates such as Kilimani and Kileleshwa is in the range of Sh300 million, an amount that is way out of reach for most Kenyans.

The price manipulation affects final property values since landlords are often forced to hike rents or asking prices to meet their financial obligations and still manage to make some profit.

To circumvent the high costs, developers are moving away from the Kenyan capital to satellite towns such as Kitengela, Kiserian and Athi River, where expansive parcels of land can be acquired for less.

Unfortunately this is not working, since speculators are equally manipulating the values of land in the satellite towns.

Shortage of finance is also a major cause of housing price inflation. Banks are starving the market of home construction loans – forcing developers to seek for expensive alternative financing.

The rising cost of construction materials and labour charges have also pushed up the prices of homes since developers must pass the costs to the final buyer.

Shortage of skilled construction workers has seen daily wages for artisans more than tripling over the past five years, further raising building costs in the country.

Poor infrastructure, costly building materials, exorbitant county taxes have also been cited by developers as some of factors that have made it impossible for them to build truly affordable housing in the country.

Although the government has offered tax incentives to developers of low-cost housing, some investors are holding back major plans to venture into this market segment saying that it is very costly and the final returns are meagre.