I got under Sparkly's skin today. I have never seen him this annoyed on Wazoo before. Hata Wakina Double A are very composed even in the heat of debate. Sijui nini imehappen with our good broda. I hope it is not because he is upset that his HAFR mkebe stock is headed for the ground

@Mugunda is correct in that "depreciation" is an accounting concept BUT it is rooted in reality too.
Some buildings. depending on their nature, may last for centuries though they may require increasing maintenance or major renovation.

The depreciation may be "even" in accounting but as we know the repairs/replacement/renovations are anything but regular and equal.

As for rental yields, they have generally been sub-par, often below inflation and/or T-Bond returns, in Kenya. The capital appreciation was fueled by the "herd mentality" and "pyramid" nature of investment. Those returns (exceeding inflation or T-Bond yields) are unlikely to be seen in the near future unless economic potential increases.

Let's use Centum as an example.

Unless the Vipingo Area sees an influx of INDUSTRIAL and COMMERCIAL users, the land values will stagnate. The influx can only be driven by ECONOMIC factors which require decent fiscal management of the economy and good infrastructure to open up the area. Both factors are unlikely to happen in the near future.

Two Rivers: The mall is as good as it gets for now but it could get worse. For Centum, it is a loss leader. The "extra" land is up for sale but the demand is low. Do not expect any significant positive cashflows.

Firms which have debt and have "land" as their primary business are going to face a very tough time.

I don't know much about HAFR but I like Centum [discussing the business not the share price] since it has positive cashflow businesses (NBL, Almasi, etc) that can sustain the operations through the lean years.

I agree with you 100%

I also think the real estate market is about to get hotter with the low housing development scheme. I think it will have a few benefits
1. Introducing and removing stigma of alternative building strategies like pre built panels etc. This will have a knock on effect on the other levels because and probably bring down the cost of the middle and upper brackets.
2. The low income houses create a new middle class. A senior nurse in Kenya earns 50-70K p.m. How is she to afford a house even with a combined income. This scheme will increase the middle class by providing an asset through which this class can increase their revenue.
3. Opening up the counties as a viable investment destination.

I think this market is about to get hotter and the cold spot in the upper bracket wont detract the overall market. Looking forward to seeing what will be done through the low cost housing.

@mugundaman

The law of demand and supply is alive and kicking.

We came off a "lost decade" under moi and so from 2002 onwards so we had the benefit of starting off from a low base.

Growth Rate: 5% is not "red-hot" given some countries like India and China (if you believe the official stats) had 7-10% growth for more than a decade. Some areas will continue to see an increase in prices if access (eg roads) make in-roads.

Middle Class: It will continue growing but 'affordability' of real estate remains key. People benefit from living closer to where they work and the "affordable" plots further out may have a commuting cost.

On an all-cash personal/individual portfolio, one can get 11% (after tax) on IFBs.
In some "middle-class) parts of Nairobi, the gross rental yields are 6% (pre-tax), then discount maintenance costs, etc. Plus the hassle of owning real estate - dealing with tenants, etc.
[Rents usually increase but IFB yields will not]

Will the property increase in value by 5% annually to match the IFBs?

There are many other factors that come in play. This is a not a comprehensive analysis.

If one is buying a plot, without building a rentable structure, then the capital appreciation required is at least 11%.

I agree that GoK playing in the market distorts the market but GoK can not supply enough even with the 3% tax. What GoK is doing si helping to reduce the inequality because there is a group of people who are certainly being ignored by th protery developer.
My point is is that without GoK intervention there is a huge group of people who are being left out from the market because developers are looking for a 30-40% return on investment!
Also by intervening GoK creates a "new" middle class bu enabling a group of people to obtain an appreciating asset cheaply and also provides the "new" middle with an asset to enable borrowing of the new asset. This also has an effect on the general economy.