How will there be a burst? The people pumping money into real estate are mostly using cash. This means that there are hardly any creditors to call in what they are owed, which is usually what triggers a bubble burst.

The painful reality is there are just some things that Kenyans are suckers for, and will buy at whatever cost. Even when you look at other billion shilling industries, such as cars, phones, electronic gadgets etc, Kenyans buy those things at obscenely inflated prices, but since they are all using cash, there is no bubble to burst.

The only thing that can cause a massive price crash is political instability. Our economy is glued to politics and if things get haywire, a huge number of people will be left unable to pay their mortgages resulting in a surge in defaults and over the roof foreclosures. There will be a massive oversupply in houses with no buyers and no lenders in the pictures. All the big money will move out and it’ll take years to rebuild.

Otherwise its very unlikely for the market to crash, however a correction has been on the table from 2010 but hasn’t seriously shown its face in the market yet. The nation article lists the following as a cause of a bubble:

“low bank interest rates, variable rate loans, easy-to-get credit, a willingness of home buyers to take out second and third mortgages, long-term repayment terms and mortgages that exceed the value of the home”

How many of the above factors do you think apply to our situation? I can tell you for a fact that Kenyan banks don’t hand out money like fools and it’s almost unlikely that you’ll get a mortgage beyond what you can afford.

The real reason behind Nairobi prices is an emerging middle class, yes there are many new IT guys, lawyers and other professionals who have the earning power (not seen in moi days) to afford houses and apartments within prime estates, the second crop of people are those who bought apartments early on and are now moving to villas. It also needs to be understood that these people have their lifestyles entrenched in the area they live in i.e. schools, church, shopping, social circles etc. So until we have the necessary infrastructure to complement this lifestyle outside the city, Nairobi will be a residential hotspot. The opening of thika highway is not enough to dampen the market, at least 3 other highways originating in areas which can provide the same alternative lifestyle are needed.

Such infrastructure wouldn’t come overnight, it would take around 20-30 years. Meanwhile Nairobi is an expanding hub, coupled with the oil discovery and increasing population which is likely to earn more, there is no way a crash is imminent.

Please don’t compare the general American real estate market to ours; we operate on completely different dynamics. The house posted on this thread is in florida, a place where there are is no significant economic or employment opportunity yet it has a serious housing oversupply. Secondly suburban houses in America are made of wood and prefab boards thus the cost is lower than a proper Kenyan house made of stone and concrete. Thirdly most of our finishing are imported and thus overpriced, so if you want quality you got to pay for it. If you really feel the need to compare then compare our market with places with limited infrastructure or no room to expand like Sao Paulo or Manhattan and let us know what you find.

In 2001 I sold 4 bedroom apartments in westlands for 1.8 million, so I know a rough market and trust me we are still far from it. An apartment project which started in January is already 65% sold with around half the buyers coming in with cash. My completed projects i.e offices, apartments and villas are almost sold out, just one or two units remaining on every project. The guys who are facing problems right now are those who have no clue what real estate is about, they saw people making money, thought its an easy game and jumped right in. A correction would be a nice way to weed them out.

And @Rapudox: Start making that 150,000 work for you and you'll be where you want in a few years.

@Pesa Nane..Word!

The CBK third quarter report indicates that real estate borrowers contributed highest to the number of non-performing loans over the third quarter when gross non-performing loans increased by 5.6 per cent to Sh60.74 billion in September 2012, from Sh57.5 billion in June 2012."

"Prof Ndung’u said the fear is that most people might be taking personal loans to finance housing projects."