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Property bubble bursts
Rank: New-farer Joined: 4/6/2010 Posts: 14 Location: africa
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Hi all, just to challenge conventional wisdom on property(no price is too high). i did the post below.Let me know your views on the property market. Nairobi Real Estate bubble bursts
It happened sometime towards the end of 2009.The bubble was concentrated in the upper to high end property market.i.e. houses above Ksh 10 million.Unlike, other markets Kenyans have never experienced a large scale property price decline or slump.
Signs of the high end property slowdown are:
-Property sellers not providing indicative prices
Take a look at the property supplements in the thursday newspapers in early 2009 and 2008.Sellers provided indicative prices for every property offered.Currently, property listings beyond Ksh 10 million have Price on Application(POA) instead of an actual price.POA indicates that the sellers are unaware of the ruling prices for the relevant property prices.Hence, they wont quote an indicative price for fear of over bidding the market and failing to sale or underbid the market and sell for less than the market rates.
-Compression of rental yields
Looking at the indicative rents around Kilimani,certain areas in Lavington such as Valley Arcade you can see that indicative rents have stagnated around the Ksh 60,000-65,000 range or lower for the desperate landlords.Areas, such as South B/C,Langata and West are seeing a stagnation of rents i.e. rents rising at less than 10% per annum.
-Rise in furnished apartments
To counter falling/stagnant rents savvy landlords are offering furnished apartments and houses.Ideally a furnished apartment rents at least 30%-50% higher than a similarly unfurnished unit.To furnish an apartment that you can go for Ksh 70,000-Ksh 90,000 a month wont cost you more than Ksh 200,000.The extra Ksh 20,000-Ksh 30,000 from furnishing can be recouped in less than 12 months.Furnished apartments have also seen a decline in rents a furnished 3br unit in Upper Hill used to be Ksh 120,000 now its around Ksh 90,000.
The factors that led to the real estate slump were:
-Oversupply to a narrow market segment
Most developers were focusing on the Ksh 10 million and above units because thats where the high margins were.In the end they oversupplied it.The slump has led developers back to the Ksh 5million-Ksh 8million segment.VillaCare and all those high rollers have projects for that price range on going.
-Consumer sophistication
Property buyers in the late nineties and early 00s were thrilled by the property location they didnt care about the finish or quality of the property.i.e. people were happy to buy property in Kilelelshwa it didnt matter if the finish was poor.Thats how the area around Kileleshwa Police station and Kenton College ended up looking like Umoja with a lot of flats/apartments.
Over the past three years people buying/renting high end apartments have developed minimum requirements.i.e. if someone is going to buy a Ksh 10 million apartment or rent it he requires: at least two allocated parking spaces,back up water supply e.g. borehole or large reserve tanks, large living space, good security lay out and recently a servants quarter is a must.If your apartment doesnt have these facilities, renting/selling it at the higher end of the market ruling price is tough.
-Alternative choices
Real estate buyers in Nairobi started questioning the wisdom of buying an apartment at Ksh 9,10 or 15 million when that amount could buy an acre or more of land around the city.The odds of land values rising are higher than a Ksh 10 million apartment doubling in price to Ksh 20 million or even rising to Ksh 15 million.
-Bank lending
The risk aversion among local banks led to a slow down of lending for mortgages and development towards the high end units.Leading to fewer clientele for the finished property.By the way i see banks fronting for several property sales through newspaper ads.does that indicate their exposure to the sector?
-Normal supply of units for sale
Regardless of existing market conditions(whether boom or slump) property is always on sale.People who need to sell property are ready to take lower prices because they need the cash.On the other hand existing property owners who have a large capital gain will sell to cash their gains.e.g. if you bought the first Apartments in Lavington/Kileleshwa in the late nineties you got in at between Ksh 4million-Ksh 6 million.Even if the current market is tough, Ksh 8 million to Ksh 10 million can be raised..morejohn p attached the following image(s):  hsebubimages.jpg (4kb) downloaded 0 time(s).
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Rank: Chief Joined: 1/3/2007 Posts: 18,371 Location: Nairobi
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At some point the prices will make no sense... In other words... can the median earner afford the median house? In the USA... the price became out of reach of the common man... The only reason houses were affordable were coz of 'fake' loans... when these stopped... CRASH... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 9/15/2006 Posts: 3,907
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Your signs that indicate bubble has burst in upper/high end property market are plausible:
-Property sellers not providing indicative prices
-Stagnation of rental yields
-Rise in furnished apartments as a counter
'Property is overvalued' words have been a mantra of 'madmen'; no one has had reason to pay heed thus far. As with all things, time will tell.
If this bubble loudly bursts in our folks life time, no words will explain the palpable shock!!!
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Rank: Elder Joined: 10/1/2009 Posts: 2,436
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Sorry, I don't buy this its too over-harped - this bubble has been said to burst one-too-many times! Just how many bursts can happen to the same segment (real estate)within 5 years or so?
Rise in furnished apartments as an indicator?
Not necessarily - in most cases it is to target upper-class foreigners (NGOs, embassies,etc)who are in the country for short periods of time (maybe a year or 2)and are ready to pay a tidy sum (by our standards). Another reason is that most of these apartments were acquired on mortgages and by furnishing them the owners command even higher rentals that are used to offset their monthly repayments/ loans without going back to their pockets and so clear their loans quickly.
One true fact is that there have been many apartment blocks put up in the 'leafy suburbs' in recent times and one would tend to think the rents will accordingly go down in view of the huge supply. Yet no one of these blocks are vacant, showing demand can comfortably absord the supply (in fact demand outstrips supply) - so what fundamental forces are these that would drive down the values- both rent and property?
I can predict next year and the year after there will be yet another talk of yet another property burst.
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Rank: Veteran Joined: 11/4/2008 Posts: 1,289 Location: Nairobi
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A new trend is emerging which is going to cause some areas to crash and other areas to appreciate. The haphazard planning of our city is to blame. We now have commercial buildings being built next to residential houses. For this reason, owners are selling and looking for areas that are residential only. Traffic jams are also a factor as getting tenants to who will live in such areas is difficult. Owners opt to invest elsewhere.
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Rank: Elder Joined: 10/1/2009 Posts: 2,436
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@FundamentAli u got a point there.
For instance, the water and sewerage services for Lavington, Kileleshwa, Kilimani, etc where these apartments are coming up everyday were NOT designed for such a high population density as is presently. One wonders just how much more the physical infrastructure/ utilities can take?
BTW, is it true that there is a moratorium on construction of further developments of apartments in these areas? Thatwhat we see are those approved much earlier now getting completed, but no fresh projects have been sanctioned by NCC. Someone confirm.
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Rank: Member Joined: 11/30/2009 Posts: 141
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Mmhh very interesting I came back and found 3 of my neighbours houses are for sale. Another 2 don't have anyone to rent. My house is not in the leafy suburbs but its something to ponder Hata wakizima taa
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Rank: New-farer Joined: 4/6/2010 Posts: 14 Location: africa
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@all:I put the entire post on wazua so that you can have mo' clarity.
The property bust isnt concentrated on property less than Ksh 10 million.It is mainly centred around kilimani,Westlands,kileton and is to do with apartments.
LOOK at this thursdays EA standard and a copy from 12 months ago.You'll see more hses at less than Ksh10mn in today's paper and more of the >Ksh 10mn in the older paper.
@Muganda dont worry about mine and yours quarter acre plots at Syokimau we are in the money..ha..ha..
@Intelligentsia:Yeah a lot of people have called the bubble, but the thing is this is a skewed bubble mainly in the upper market segment.When you talk PROPERTY in Kenya mostpeople think of their ONLY investment the house they are paying a 15 yr mortgage for or the quarter acre they are building their retirement pad.When you consider property like any investment you can spot mispricing.
Take a drive/walk around the areas mentioned ASK by yourself NOT thru AGENTS e.g. 3-5 years ago a furnished 3br apt in a good area was Ksh 90k-120k.
Now if you do the legwork u can get the same for 85K and below.Most of the furnished units are just to get higher rents but its flooding that segment.
@FundamentAli: True dat there are a couple of places that are about to go that way.BTW if you look at a certain'leafy' hood a section of it has so many flat that you cant see the leaves/trees.
@nanfor1: Where the general hood location? then i'll tell u if its a coincidence or slow down?
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Rank: Veteran Joined: 11/4/2008 Posts: 1,289 Location: Nairobi
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@ John P
Not all apartments within one block are rated the same by buyers. There are those choice apartments which could be the top floor etc, based on the local conditions. An unattractive apartment on the ground floor or next to the road etc may mean that the selling has to go on. Moved in somewhere last year in may and two flats on the ground floor are yet to be taken. Majority of the flat were bought in no time.
@ Intellegentia
The council had stopped development in these areas to come up with a policy 5 years ago. The now charge a development levy equal to 1% of the development cost for infrastructural development. Despite collecting these levies, the council has done nothing. It is also a pity to see concrete jungles coming up in the once leafy areas. I understand the Ministry of Local Government is the one raising concerns about the planning and not the council. Let us face it, we have to cater for a growing population and growing economy. The collateral damage is that the trees have to go.
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Rank: Elder Joined: 10/1/2009 Posts: 2,436
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Wazi fundamentAli
Real scenario
Imagine a mamacita living in one of the leafy suburbs - nice bungalow and a bean-shaped pool from where she swims daily in her swimming kit (bra + pants separate) and then lies on those nice reclining chairs (that u find at beach hotels)to soak up the sun's vital vitamins.
Tereng tereng, she suddenly glances to her right at the nearby apartment block next to her fence and like the peeping guests below, finds dozens of neighbour's faces pressed against their windows ogling at her...she screams and flees
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