East Africa has changed our building landscape in the last 20 years, as real estate continues to thrive. Technology and new building infrastructure has played a role as it should have done. This also has made major cities across the world gain a significant growth in the real estate sector. This has led to new development of buildings in different regions such as commercial offices, retails, warehouses, hotels, residential sectors and new educational facilities like student hostels. Change is required for any real estate company to remain competitive, thus attracting new investments in the real estate sector.
In Kenya there is an expanding growth of the working class as the income is projected to rise. It is becoming a trend to satisfy consumers’ condition in the property market enabling investors gain positive change in property investment. Real estate will continuously appreciate despite from time to time slow downs in the economy, it is proven to be the best way for an investor to generate income.
Most investors concentrated primarily in high-end assets in the first few years of real estate investment with the target that they would deliver high returns and higher margins. There has been a new approach and diversity in the real estate industry focusing on other infrastructure development to avoid market saturation.
A tiny proportion of the population lives in high-end neighbourhoods in Kenya. Market research has reported demand for 2 million units as the country’s working-class needs are on the rise. Over two-thirds are working class who can afford the rent of Ksh 18,000 to Ksh 50,000 a month. Investment in this kind of property has been operated by the landlord market delivering developments found in the more densely populated Nairobi estates.
The property that investors choose can have a great deal of influence on the stability of an investment over time, as well as its growth appreciation. For investors looking for capital, preservation may make the right investment in high-end, while investors looking for capital appreciation may end up choosing to invest in the working class. Some of the buildings are unplanned and non-compliant with construction standards as the developers seek to lower construction cost. Thus leading to the completion of the projects more quickly to increase returns. However, more opportunity exists for an investment property with good finishing and better quality in the real estate market. High-end areas yield an increased rental income, also driving more investors or developers to areas such as Karen, Kilimani and Upperhill where research has shown that yields are higher in the mid-market areas.
For instance, the average rental yields in 2016 in the mid-market were 6.7 per cent compared with 6.4% per cent for high-end markets. While in 2018 the mid-market rental yields ran at 5.4 per cent compared to 5.3 per cent yields in high-ends. Furthermore, demand is abundant.
The investment opportunities in real estates remain rewarding. So there is a lot of pent-up demand for working-class housing as returns are high for investors. It requires some investors to take the opportunity as value adds up in affordable housing meeting it in a financially rewarding way.