Affordability in land is a constantly evolving concept. Once upon a time, some of the locations fetching millions were worth less than Kshs 10,000. Just as other commodities attract higher prices over the years, so does land. That aside, there is always something affordable for the low income earning folks. However, lately, the number of affordable locations has been reducing significantly, leaving just a few locations retailing at less that half a million.
Impressive growth curve
Looking at data from the last two election cycles, price tags on the cheapest locations doubled within five years while locations retailing at less than half a million nearly reduced in half. For instance, in 2017, one of the cheapest locations, Tinga was selling at Kshs 100,000 and some companies were selling an eighth acre in the same location at 90,000 or less depending on the exact location from the main road.
At the same time, there were over ten low cost locations to choose from, mostly within the three, prime metropolitan counties-Kajiado, Kiambu and Machakos. Between 2017 and 2022, Tinga, which was previously the cheapest location jumped to Kshs. 250,000 and Kshs 350,000. Kimuka, in Ngong, one of the hottest locations in 2023 jumped from about Ksh 300,000 in 2017 to Kshs 650,000 in 2023.
Meanwhile, new locations were opening up within this same period, mainly due to infrastructure development. Some of the cheapest locations that opened up between 2017 and 2022 include, Malindi, new locations in Nanyuki, Kajiado, parts of Thika road (Ngoliba, Kilimambogo and Matuu) and Mombasa Road.
Highest price increase for satellite towns
The period between 2017 and 2022 might have been a golden era for the real estate market, as their was a lot of activity and vibrancy. After the 2022 election, we’ve however seen fewer affordable locations opening up, yet land prices in the previously affordable locations, are still increasing.
According to data by Hass Consult, satellite towns experienced the fastest growth in price increase (3.7) in the last quarter of 2023. This is the highest price jump in over 4 quarters compared to data from quarter two, 2022. Following closely behind are the suburbs- especially those along major roads- fetching higher prices with an annual price increase of 4 percent. Comparatively, satellite towns had an impressive annual price increase of 9.3 percent in 2023.
Clearly, there is a growing demand for the few affordable locations available in satellite towns. What does this mean for buyers and the real estate market. And why are new locations not opening up?
New Infrastructure
Kenya’s real estate market growth is pegged on infrastructure development. The value of land is tied to its accessibility. And often, when the government launches a new road construction project, the property prices for locations close to that road soar. If the locations were unexplored, they suddenly become attractive to land buying companies and end user buyers. Other amenities such as schools, shopping complexes and industries may influence property values, but roads have an upper hand.
Looking at the article on the most popular locations in Kenya, you’ll notice that their popularity is mostly influenced by some major infrastructure. Notably, most of the roads influencing these location’s popularity were launched between 2019 and 2021. Though some of the projects stalled, they definitely opened up these locations.
11 Most popular real estate locations in Kenya, 2024 (according to Google Search)
Unfortunately, since the 2022 elections which ushered in a new government, we’ve not seen new roads being launched. As a result, new, affordable and unexplored locations are not opening up.
Public Debt Burden
There could be many reasons as to why new roads are not being launched or why major roads are not being expanded as with every other government. The most obvious reason could the country’s existing public debt burden and the fluctuating (mostly falling) shilling value.
As of December, 2023, the Central Bank of Kenya placed Kenya’s public debt at Kshs 11.14 trillion. It is no secret, that Kenya is in debt crisis, a fact that the government has tried to mitigate my increasing revenue streams and tax brackets.
The US dollar has also gained significant value over Kenyan shilling which increased the cost of servicing existing loans. As a result, the government may be focusing primarily on debt repayment as it is nearly impossible to launch new infrastructure projects. Bear in mind that most of these projects are funded through debt.
End of speculative buying
Does this mean- with no new roads or expansions it’s the end of affordable land? Not at all, we are far from that reality. However, scarcity of affordable land will have major impacts on Kenya’s real estate market over the next few years.
First developers and land selling companies that pegged their business models on affordable locations will struggle to stay afloat. With less affordable pieces to scramble for, real estate companies that either developed or sold in new locations where they are able to control the profit margins with ease will have fewer projects running.
In addition, speculative buying is likely to come to an end. Land hoarding, entails buying cheap pieces of land and “sitting on them” for years, waiting to reap big after a resale. Speculative buying has largely been fueled by availability of cheap land. With property values soaring, there will be fewer speculative buyers.
While the demand is likely to increase as the supply reduces, (subsequently increasing cost of land), there is a positive twist. For a long time land prices have been exaggerated as real estate companies overvalue location. If speculative buying is to come to an end, it is a chance for the real estate market to regulate its prices naturally. This means, property values will follow natural supply and demand patterns rather than inflations by individuals who want to reap unreasonable returns from land.
Diversified investments
Finally, buying land over the next few years will definitely be costlier than it was two or so years ago. Buyers are not spoilt for choice and it is best to buy as soon as one can afford. On the flipside, the housing market and other asset classes might experience growth. For a long time, land has been the go-to investment for a lot of Kenyans. But with fewer affordable pieces and the apartments market growing, it is likely that more Kenyans will focus on alternative investment options.
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