Kenya’s Real Estate: Debunking the Property Bubble Myth and Assessing Future Trends

The specter of a real estate bubble has intermittently haunted Kenya’s property market, with concerns arising in 2016 and 2017. Industry leaders, however, vehemently dismissed the notion, arguing that the market was witnessing the typical cycles of rising demand, peaking, falling, and stabilizing prices. A decade after the global financial crisis, which had seen housing bubbles burst in various parts of the world, the Kenyan real estate sector seemed resilient, supported by unique market dynamics.

In the initial waves of skepticism, Knight Frank Kenya asserted that real estate bubbles were more likely to occur in well-established markets, and Kenya was not exhibiting the signs of a housing bubble. The market’s rising phase, characterized by low supply and high demand, was identified as the driving force behind the surge in prices. This sentiment was echoed by industry experts who maintained that Kenya’s real estate market was not susceptible to a bubble due to its distinct characteristics.

HassConsult’s research and marketing manager, Sakina Hassanali, emphasized that a bubble would only manifest when mortgage repayments equaled monthly rentals, a scenario absent in the Kenyan market at that time. The prevalence of cash-based transactions and the lack of cheap finance mitigated the risk of a housing bubble. The sentiment was clear: without the elements conducive to a bubble, Kenya’s real estate market remained stable.

However, as 2020 unfolded amidst the challenges posed by the Covid-19 pandemic, the demand for residential houses surged once again. The dynamics of the market took an unexpected turn, with the demand for affordable housing intensifying. Rather than witnessing the anticipated trickle-down effect, where houses become more affordable for the wider population, the trend observed was a trickle-down of rent. This shift created a scenario where high demand for the limited available houses drove up rents, making it difficult for the lower-income segments to afford decent shelter.

The debate about a potential housing bubble resurfaced, posing questions about the sustainability of the market, especially considering Kenya’s growing population, which had surpassed the 50 million mark. Would the high demand for housing inevitably lead to a housing bubble? Could the ambitious affordable housing project, aiming to construct 200,000 units annually, be the solution to this challenge?

Economist George King’oriah dismisses the notion of a bubble, asserting that property values are more likely to flatten out and experience a gradual decline due to the presence of investors with a long-term perspective. He attributes this scenario to the reluctance of the affluent to part with their properties and sees a bubble as highly unlikely.

Adding to this perspective, real estate expert Mr. Ndege highlights the capital-intensive nature of real estate investment and the limited access to credit and mortgages in Kenya. While mortgages have turned many into homeowners globally, their uptake in Kenya remains modest. The mortgage market’s underperformance is attributed to factors such as the scarcity of long-term capital for lenders and challenges in accessing credit.

In conclusion, the prevailing sentiment is that, despite the surge in demand, the unique characteristics of Kenya’s real estate market, coupled with limited access to credit, make the emergence of a housing bubble highly unlikely. While challenges persist, the market’s resilience and ongoing initiatives, including the affordable housing project, are poised to shape the future trajectory of Kenya’s real estate landscape.