Outlook for Kenya’s property market remains positive
Last Updated: December 15, 2014
During the year to end-Q3 2014, the Hass Composite Property Sales Index, a measure of asking sales prices of residential properties, rose by 4.7%, a sharp improvement from meagre y-o-y increases of 0.05% in Q2 2014, 1.7% in Q1 2014, and 0.3% in Q4 203, based on a report released by HassConsult Limited. Quarter-on-quarter, residential property prices increased 3.1% in Q3 2014.
The Hass index is based on 4,000 to 6,000 properties tracked across Kenya, which are collected from multiple estate agencies and all publicly available house sales, including in property magazines, property websites and the national media.
The average value of a property in the country surged to KES25.6 million (US$283,000) in September 2014, from KES7.1 million (US$78,482) in December 2000, according to HassConsult. The average price for a 1-3 bedroom residential property is currently KES11.8 million (US$130,435). On the other hand, the average price for a 4-6 bedroom residential property is KES36.5 million (USS403,463).
By property type:
- The average asking price for detached houses increased 3.3% y-o-y to KES36.3 million (US$400,788) in Q3 2014. Prices for detached houses also rose by 3.2% during the latest quarter.
- The average asking price for semi-detached houses surged 8.4% y-o-y to KES20.9 million (US$230,756) in Q3 2014. Semi-detached house prices increased 2.4% q-o-q in Q3 2014.
- The average asking price for apartments stood at KES13.1 million (US$144,637) in Q3 2014, up 6% y-o-y and 3.6% q-o-q.
In Kenya, most property purchases are cash-based transactions. Because of this, the mortgage market remains underdeveloped.
Kenya’s property market is expected to remain strong in coming years. “Kenya’s property market has potential for higher rates of return compared to other jurisdictions. It is also relatively easy for foreign investors to enter Kenya’s real estate sector,” said Nathan Luesby of Jenga Web Ltd.
The economy is expected to grow by 5.7% this year, almost the same as the previous year, according to the Kenya National Bureau of Statistics. The central bank kept its key interest rate unchanged at 8.5% in November 2014, after cutting it by 25 basis points in May 2013 to buoy economic growth.
Foreigners can freely buy ‘commercial class’ land in Kenya. This type of land is for income or revenue-making purposes.
Yields are moderate to good in Nairobi, Kenya: expect around 6.5% from an apartment.
Gross rental yields on Nairobi apartments are moderately good, at around 6.5% to 7%. Yields on houses are lower, at 5% to 5.4%.
A 3 bedroom apartment in an elite district of Nairobi can be bought for around US$220,000. A 3 bedroom house may go for US$450,000, and a 5-bedroom house may go for US$800,000.
Round trip transaction costs are very low in Kenya. See our Property transaction costs analysis for Kenya and Property transaction costs in Kenya, compared to the continent.
Kenya's rental income tax is high
Rental Income: Kenyan gross rental income earned by a nonresident individual is subject to tax, withheld at source at 30%.
Capital Gains: No tax is levied on capital gains realized from the sale of real property.
Inheritance: There are no inheritance or gift taxes.
Residents: Residents are taxable on worldwide income at progressive rates, from 10% to 30%.
Total transaction costs are low in Kenya
In the absence of corruption (which is virtually impossible in Kenya) the total round-trip transactions cost would be around 4.76% to 6.76%, inclusive of the 1.25% real estate agent’s commission.
The whole process for the titling of the property can typically be completed in around 72 days.
Real estate transactions are normally quoted and concluded in Kenyan Shillings (KES).
Landlord's rights are strong in Kenya
Kenyan rental market practice is pro-landlord.
Rent: There is no rent control at the upper end of the market. Prior to occupancy, the tenant normally pays a quarter’s rent in advance and an additional one month’s rent as security deposit.
Tenant Evictions: Landlords carry out evictions themselves, even if the law mandates that only the courts can order an eviction. Landlords can also seize the tenant’s possessions for compensation of unpaid rents.
Kenya joins middle income clubKenya is sometimes known as the “cradle of humanity.” Many believe the bones of our oldest ancestors lie in the Great Rift Valley. Great safari destinations, with abundant wildlife and beautiful scenery, tourism and horticulture have become major foreign exchange earners, rivaling the tea industry (Kenya is the world’s third largest tea exporter).
After a prolonged economic stagnation because of corruption and strict regulations, the country is now showing robust economic growth. The economy grew by an average of 6.3% from 2010 to 2013.
In September 2014, Kenya effectively joined the ranks of middle income countries. This was mainly due to the ‘rebasing’ of the economy, which resulted to a 25.3% upward revision of Kenya’s GDP in 2013 from a previous estimate of US$42.6 billion to about US$55.2 billion, according to Kenya National Bureau of Statistics (KNBS). The statistical reassessment makes it the 9th largest economy in Africa, surpassing Ghana, Tunisia and Ethiopia. The country’s real GDP growth rate last year was also revised upwards to a robust 5.7%, from an earlier estimate of 4.7%. In addition, Kenya’s GDP per capita was also increased to US$1,246, from just US$994 in 2013.
This positive economic development is expected to lower Kenya’s debt ratios, and improve its ability to borrow to finance a much needed construction of new transport links and a repair of existing infrastructure in the country.
Moreover, it is also expected to boost the country’s slumping tourism sector. “The GDP rebasing exercise in Kenya will provide a much needed boost to the Kenyan economy as the government tries to spur economic growth in light of the challenges facing its important tourism industry,” said Ahmed Salim of risk-advisory group Teneo Intelligence.
Agriculture remains the backbone of Kenya’s economy, contributing an average of about 25.4% of GDP every year. But manufacturing, Information and Communication Technology (ICT), and real estate are expanding.