Why real estate prices are high in Kenya, there is no bubble, prices will keep rising

Why real estate prices are high in Kenya, there is no bubble, prices will keep rising

Photo: Real estate guru Mwenda Thuranila, he is the CEO of Myspace ltd

By Ephraim Njega via Facebook

The people who used to forecast real estate bubble in Kenya must be really disappointed. As I have argued often for a bubble to burst there must be one in the first place.
A bubble situation is one where prices are irrationally high. Meaning the high prices are backed by irrational exuberance rather than market fundamentals.

Real estate prices are high in Kenya but they’re supported by fundamentals. For instance in the lower and middle income segments demand still far outstrips supply.
Then there’s the issue of how real estate is financed in Kenya. A lot of property in Kenya is financed through cash rather than debt.

The sources of cash are contestable. A good proportion is from illicit flows. In most corruption cases the cash is always traced to property.
This situation explains why rents aren’t collapsing. The demand is still higher than supply and property bought in cash can stay vacant for long without the owner risking loss.
The other part is something unique to Kenya. We have settled only on a small part of the country. I can theorise that 80% of the population is crowded in 20% of our land mass.
This issue can only be resolved in the long-term by moving the capital city to somewhere in Isiolo, Marsabit, Samburu region.

If this doesn’t happen prices of land in and around Nairobi will remain elevated, the chaos in planning will worsen, slums will expand and the number of the homeless will increase. Nairobi will become an expensive yet unlivable hell hole.

As the economy continues to weaken and collapse prices of high end residential property and commercial property will decline.
Prices of low to middle income segments of real estate will at best stagnate. You might even be shocked to get your rent increased despite the current crisis.

The situation can only change if people relocate enmass from Nairobi. By enmass I mean the city’s population decreasing by over 30% in the short to medium term.
Another hope is if a visionary government is elected in 2022 and comes up with plans for decongesting the city. This is a matter in our hands.

Why real estate prices are high in Kenya, there is no bubble, prices will keep rising


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