Karen and Kasarani suburbs recorded the highest annualized capital appreciation in the Nairobi Metropolitan area, a recent report by Cytonn Real Estate shows.
The report named Nairobi Metropolitan Area Land Report 2020 noted that the two areas grew in capital appreciation at 5.6 per cent and 5.7 per cent respectively, in 2019/20.
Ruiru on the other hand recorded the best performance among satellite towns with a capital appreciation of 6.2 per cent and 5.8 per cent for unserviced land and site and service schemes.
The land sector within the Nairobi Metropolitan Area recorded an 8-year compound annual growth rate of 13.5 per cent and an annual capital appreciation of 1.5 per cent in 2019/20.
This is attributed to increased demand for land mainly in the low rise residential areas and satellite towns.
During the period under review, transactions in the sector were driven by increased focus on the affordable housing initiative, development of infrastructure, positive demographics, and reduced supply of development land at affordable prices in areas close to the Nairobi CBD.
The sector was however constrained by inadequate infrastructure, inaccessibility and unaffordability of loans and reduced real estate development activities in the wake of the COVID-19 pandemic.
This resulted in the disruption of construction materials supply chains and constrained development funding as investors adopt a wait and see attitude given the uncertainties in the market.
“Asking land prices in the low rise residential areas recorded a 3.8 per cent capital appreciation y/y, attributed to the availability of development land and a growing demand as the areas are sparsely populated, thus offering exclusivity and privacy,” said Beatrice Mwangi, a Research Analyst at Cytonn.
She added that un-serviced land in satellite towns such as Ruaka also recorded a capital appreciation of 3.8 per cent y/y, driven by a growing demand for land in these areas fuelled by the demand for housing by the growing working population as the areas act as Nairobi’s dormitory, coupled by the improving infrastructure
Site and service schemes recorded a 0.5 per cent annualized capital appreciation, attributed to increased demand driven by the relatively affordable land at approximately Sh15million asking price per acre and provision of infrastructure by the developers.
On the other hand, asking land prices in high-rise residential areas stagnated, and this was attributed to reduced demand for development land due to the relatively high land prices averaging at approximately Sh116 million per acre, compared to low-rise residential areas and un-serviced land in satellite towns averaging at Sh84million and Sh25million, respectively.
Commercial zones recorded a 0.7 per cent y/y correction in asking land prices, attributed to decreased demand for development land in the sub-markets given the relatively high asking land prices of Sh419million per acre on average.
“Due to this developers are not able to achieve favourable returns from the investments, in addition to the existing oversupply of commercial office and retail spaces which stand at 5.2 million SQFT and 2.8 million SQFT, respectively, as at 2019,’’ said Beatrice.
Ruiru, Kasarani, Karen, Spring Valley and Ruaka were among the best performing submarkets in terms of capital appreciation, recording annual rates of more than 5 per cent in 2019/20, while Ruiru offers site and service investors the highest expected returns averaging 5.8 per cent.
“The outlook for the land sector is neutral, with a bias to positive supported by the high demand for development land boosted by affordability in satellite towns, availability of development land and the improving infrastructure,’’ Beatrice said.
She however noted that they expect the COVID-19 pandemic to continue impacting on real estate development activities thus a resultant sluggish growth in land value going forward.