For the past two decades, the Kenyan real estate market has grown exponentially as evidenced by its contribution to the country’s GDP which grew from 10.5 percent in 2000 to 12.6 percent in 2012 and 13.8 percent in 2016 with experts saying the sector will not be experiencing a bubble soon.
In 2022, the construction market alone was valued at $17.3 billion and is projected to grow at an annual rate exceeding 5 percent between 2024 and 2027, aided by a strong Economic Growth. Kenya’s GDP is projected to expand by 5.2 percent on average between 2024 and 2026.
This growth is primarily attributed to increased private sector activity and the implementation of new trade agreements, such as the African Continental Free Trade Area and the European Union Economic Partnership Agreement. Other factors such as high demand have led to the growth of the sector too.
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Understanding historical trends in rental yields and capital appreciation is crucial for making informed investment decisions. In 2023, the average rental yield for residential properties in Kenya was 7.5 percent. Commercial properties generally commanded higher returns, reaching up to 12 percent. Properties in prime locations within urban centers have historically experienced higher capital appreciation compared to those in rural areas5.
While the average annual property appreciation rate in Kenya ranges from 8 percent to 30 percent, it’s important to acknowledge that the market has shown signs of stagnation in recent years. However, this stagnation has resulted in a unique advantage for investors: prime real estate in Nairobi has become relatively affordable compared to other major cities worldwide. This presents a compelling opportunity for those seeking to acquire high-quality properties at competitive prices.
With a rapidly growing population and more so, an increasing middle class, the residential sector has recorded the highest demand with the nationwide housing deficit standing at 200,000 units annually and an accumulated deficit of over 2 million units. However, the largest demand has been for affordable housing to cater for the 61 percent of urban dwellers who live in slums and a shortage in student accommodation accounting for 40 percent of the deficit.
With the high demand, one would expect that real estate companies are making a kill with increased sales. But no, many of them are struggling with high maintenance costs with the heat coming more from the numerous power blackouts orchestrated by the Kenya Power and Lighting Company (KPLC).
“Kenya Power has played a major role in increasing our operational costs. Currently, the majority of homebuyers want to have a home with a 24-hour standby generator due to numerous blackouts. We are forced to install this generator and run it at our cost. Given that some blackouts last for days, we are feeling the hit,” said one of the marketing managers for one of the largest real estate companies in Kenya.
Kenya’s power blackout crisis has escalated to alarming levels over the past few years, revealing a deeply entrenched pattern of incompetence, mismanagement, and negligence by both Kenya Power and Lighting Company (KPLC) and the Ruto administration.
These blackouts are not just an inconvenience; they are a dire threat to the economy and to the lives of the most vulnerable citizens, especially those in hospitals that lack adequate backup systems. To attract buyers, real estate companies are forced to invest heavily in other sources such as solar and generators.
Here are some of the notable blackouts in Kenya:
- 2020/21: 29 power interruptions
- 2021/22: 38 power interruptions
- 2022/23: 45 power interruptions
- 2023/24: 48 power interruptions
KPLC, as the monopoly supplier of electricity, bears the brunt of the blame for this crisis. Its inability to maintain a reliable grid, coupled with reports of mismanagement, inefficiency, and alleged corruption, makes it a national liability.
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