Infrastructural development in Kenya has seen land values go up while a growing population has ensured sustained demand.
Increasing demand for houses and an increasing number of multinationals looking for retail space have put East Africa’s property market on the global radar for investment.
But even as the region’s real estate sector offers attractive returns to investors, the high cost of credit and the soaring cost of construction have slowed down investments in the sector, according to a survey by Cytonn Investment Ltd.
In Rwanda, for instance, construction cost is about 20 percent higher than Kenya since the country imports most of its construction materials.
Inadequate funding has resulted in excessive debt financing, with a debt interest rate ranging from 17 percent to 19 percent per annum.
“Financing for development is not only expensive but also difficult to access,” says the report.
In Kenya, the real estate sector slowed down, primarily due to the enforcement of the interest rates cap, which prompted banks to reduce lending to the private sector in favor of the government.
However, the demand for retail space, particularly in Nairobi has been increasing gradually as shopping malls become popular.
However, in Kenya real estate has consistently outperformed other investment options such as stocks and bonds in the last five years, generating returns of 25 percent per annum compared with an average of 12.4 per annum in traditional asset classes.
The attraction of international retailers to the market and improving the quality of retail stock has enabled landlords to quote substantially higher rents.
Housing demand is estimated to grow by 200,000 units annually with the cumulative deficit currently at three million units.
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