As property prices come tumbling…. great discounts are here with us

Forget what you heard—property prices in Nairobi and its environs are at a standstill or falling.

It all depends on who you ask.

There is no other politically correct way to say it—the bubble burst or the market correction (again depending on who you ask) is spreading.

The feedback from two key players in the sector—the property indices and the real estate agents paint a gloomy picture: no one is buying, and in some neighborhoods, no one is renting.

The effects of a housing demand-supply mismatch is here in full throttle.

I will not bore you with figures.

Property Indices

In the past year, three of the widely published property indices—that Kenya relies on to gauge buying and selling temperatures, though hugely inadequate-- have consistently reported a below normal cooling off in the real estate. Check the latest figures from Hass Property Index, Kenya Bankers Property Index or the Knight Frank Index,

The indices—if they are anything to go by--indicate that in the past one year and a half there has been very minimal or no buying or selling (or renting for that matter in a number of middle-income neighborhoods) --in the real estate sector.

It takes a lot of nerve to report such a drop in prices or in selling activity especially if the publishers of the indices are themselves interested parties in the real estate sector.

Estate Agents

Talking to estate agents reveals a distressed lot.

Many estate agents have not made a single sale one and a half years down the line. Many are paid a retainer and commission so the more they sell the better for them. With no sale, there is no salary. Unable to afford them anymore, many real estate companies are reviewing their employment contracts and downsizing because of lack of business.

From this point, it is clear that finally, property developers and managers have managed to successfully outprice themselves out of the affordability range of where there is demand.

As currently priced, property is not moving except for the low-income neighborhoods—which are predominantly rental--or those neighborhoods that are far off the city center where individuals bought plots and are slowly building their houses. It is for this reason that some estates appear to have come out of the blues and landed in some sections of Nairobi.

The same is happening for rentals in certain sections of the middle-income bracket.

Off-Plan

To demonstrate how bad things are in the real estate sector, up to eleven major Saccos and investment schemes that had promised their members houses off plan are in court or headed to the courts. A number of property firms that were big names at the height of the property boom are currently having their properties auctioned for failing to meet their end of the bargain. Others like the biggest mortgage lender have decided to review their prices downwards 30 percent beginning next year to attract sales. These are the cases that have been made public. A number are on the way. It hurts to imagine what some of the off plan originators are going through but clearly, the end of the road for this model is within sight.

Now, try picture what will happen to the sales if the government finally comes through with the affordable housing units? We are staring at quite a good number of dead stock—and banks like the property owners are a worried lot.

The only property developers who are holding are the ones who did not take any loan to build their properties and can afford to wait and hope that the tide will change at some point. For the rest, it is a constant nightmare.

The Middle-Class Façade

We all know where the rain started beating the real estate firms. The focus on the high-end apartment market. The constant review of prices upwards. The target at a none existent middle class to buy. While demand is on the shallow pocket ‘middle class’ and below, the developers built houses for the upper middle class and above; the great housing demand-supply mismatch that will haunt many for years to come.

Now with the allure of the middle class gone as the effects of the current harsh economic realities check in it is time to revisit the beast in the house that has led to all these miscalculations: who is the middle class...Until we get that right we will always get it wrong.

Watch out THE MALLS ARE THE NEXT DISASTER IN WAITING…….

Way forward

It is great that the mortgage finance company is coming into play. This means lower interest rates on longer-term financing. Secondly, it has had to take this deep painful plunge to get to this point of a rethink. As a matter of urgency, all property indices need to be merged and their research scope expanded to give an accurate feel of the Kenyan real estate trends. So far, reading some of those publications sound quite out of touch with the majority. And while at it, can we tax idle land around high-density residential areas?

  

Opportunity

But like they say, with every downside has an upside lining.

With sales stagnant and property prices falling, some great discounts and offers are also coming up. Contact me on aronmaurice3@gmail.com or WhatsApp 0720595077 for up to 30%-40% discount on prices while units last.