The real estate sector in Kenya has exponentially grown over the past years. Most developers have turned to building high-priced and luxury houses for wealthy homebuyers, without considering the actual numbers of buyers in the real estate market. The number of buyers spending over sh 90 million on a house has reduced every year. The decline in demand is proving to be costly or an expensive venture for owners. Luxury homes not selling as fast as they used to. Most of the owners are paying a price for the slowness.
Last year, 72 percent of the most-expensive properties in the U.S. took longer than 6 months to sell. This was a sharp jump from 2015 when 59 percent of home lingered that long. A grandeur home with a rustic appeal in Nairobi leafy neighborhood, has been in the market for over three years. The cost of maintaining unsold properties is a lot costly.
Nili Godhia, in charge of the Greater Kitisuru area at Pam Golding, a real estate company, says that luxury homes stay long in the market due to the wrong product and wrong price. It may take 6 to 12 months to sell the house. Sellers who are able to target specific buyers interested in a unique home, are able to sell the property within a month or two. According to Nili, the prices of luxury homes in Kenya have dropped over the past few months. For instance, those located in Muthaiga dropped down by 30 percent. Many factors including cost of renovation determine whether a buyer will purchase a property, especially the cost of old houses. If the seller is unwilling to give a huge discount, this will have an effect on the property as it will unlikely sell fast.
The CEO of real estate company MySpace Properties, states the development of luxury homes is demand-driven. Despite the slowdown in real estate sector growth, there is still demand. Mwenda says that there are different types of buyers in the real estate sector. There are buyers who budget a home that is Sh 8 million or less. While there are those wealthy buyers who don’t mind budgeting for a home that is Sh 500 million or more. He mentioned Magnolia Hills in Nairobi’s Kitisuru, is considered among the priciest in the country. One unit in the neighborhood sold for Sh 600 million six years ago. There are also several pricey properties in Muthaiga especially flat land which is rare. There is the Golden Luxury villas development in Mambrui in Malindi and others in Nanyuki.
Sally Rugano, a senior property agent at real estate consultancy firm Knight Frank said that the economy was doing well. That there were prospects for growth and expansion, as from the year of 2008. With key highways and bypass being constructed in areas with less infrastructure, opened up a slot for developers in the market. This led to a surge in development of exclusive gated communities and villas in the upmarket. But the supply was more than the demand leading to a price decline between 2015 and 2016. This resulted in a considerable slow down of investment in the high -end residential market.
There are factors why luxury homes are not moving fast as they used to. This includes properties that are targeted at high-net worth individuals, adverse economic conditions, low transaction activities. There are areas where zoning regulations still permit only one unit on half-acre land, but if zoning changes to a quarter-acre zone in the area. This could allow a developer to develop two units. In certain circumstances the zoning laws determine what the developer is able to do.
However, with the lifting of the cap on interest rates there is anticipation of more real estate activity in the long-term future. A recent report by Knight Frank projects that there will be an increase of 22.2 percent in individuals with high net worth between the years 2018 and 2023. However, this will depend on factors like economic growth, interest rates, zoning policies, bylaws in urban centres and liquidity in the market. The real estate market will increase for these homes.