Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Area Land (NMA) Report 2020.
The report highlights the land sector’s performance based on annual capital appreciation, market trends and the investment opportunity. According to the report, the land sector within the NMA recorded an 8-year CAGR of 13.5% and an annual capital appreciation of 1.5% in 2019/20, compared to the (0.3%) recorded in 2018/19, 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; (i) increased focus on the affordable housing initiative, (ii) development of infrastructure, which has opened up new areas for development, (iii) positive demographics, and, (iv) reduced supply of development land at affordable prices in areas close to the Nairobi CBD resulting in demand for the same in satellite towns.
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 which has 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% 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.
Un-serviced land in satellite towns such as Ruaka also recorded a capital appreciation of 3.8% 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,” stated Beatrice Mwangi, a Research Analyst at Cytonn.
“Site and service schemes recorded a 0.5% annualized capital appreciation, attributed to increased demand driven by the relatively affordable land at approximately Kshs 15 mn 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 Kshs 116 mn per acre, compared to low-rise residential areas and un-serviced land in satellite towns averaging at Kshs 84 mn and Kshs 25 mn, respectively.
Commercial zones recorded a 0.7% 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 Kshs 419 mn per acre, on average, thus 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 mn SQFT and 2.8 mn SQFT, respectively, as at 2019,’’ she added.
Ruiru, Kasarani, Karen, Spring Valley and Ruaka were among the best performing submarkets in terms of capital appreciation, recording annual rates of more than 5.0% in 2019/20, while Ruiru offers site and service investors the highest expected returns averaging 5.8%. The table below summarizes the performance of the various areas:
Summary- y/y Capital Appreciation Nairobi Metropolitan Area Land Sector
Ruiru, Kasarani, Karen, Spring Valley, Ruaka
Dagoretti, Runda, Kitisuru, Ridgeways, Utawala, Athi River, Juja, Limuru, Ongata Rongai, Upper Hill
Githurai, Embakasi, Kileleshwa, Kilimani, Westlands, Riverside
Site and Service Capital Appreciation
Athi River, Ruai
Thika, Syokimau- Mlolongo, Ongata Rongai
“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. However, we expect the COVID-19 pandemic to continue impacting on real estate development activities thus a resultant sluggish growth in land value going forward,’’ Beatrice concluded.