Modern transport plan set to shake up city property market

The property market in Nairobi will experience downward pressure in prices when the effects of the government’s investment in modern transport systems begin to be felt.

Thika super highway and a standard gauge railway line connecting Ruiru, Kitengela, Isinya and other outlying areas are expected to draw people from the city centre to the suburbs with great implications for the property market.

“There will be property booms in these surrounding towns as more people seek houses, and rents will start to rise gradually.

There is also bound to be a market price correction for property in Nairobi, which has been exorbitant,” said Mwenda Makathimo, a land economist and management expert.

Analysts in the property market said initially the population would be pulled to surrounding towns by the relatively lower rents, but the rates would begin to rise following the demand pull as more people seek homes.

According to Hass Consult, which tracks trends and property prices, surbubs have witnessed growth in housing mainly in the middle-level segment.

“Overall in the last two quarters, we have witnessed a great momentum in the sale of mid-market villas in Nairobi’s peripheral areas with these offering a better lifestyle opportunity than development of apartments and maisonettes in similar areas,” the firm said in a report released in January.

The report said the buyers of these villa developments were happy to “bear the extra commute in exchange for a suburban lifestyle that one would expect in these areas”.

The by-passes and the railway line that will connect to Nairobi’s central business district are expected to accelerate this development as transport becomes cheaper, faster and more convenient.

This, property analysts say, will lead to a correction of prices as the demand pressure eases in the central business district, while rents will increase in satellite towns where more people will flock for residential and commercial purposes.

Mr Makathimo said property prices in Nairobi are “super abnormal” due to high demand against the backdrop of a supply deficit.

In addition to the high cost of land that has slowed down development, the time required to complete buildings is a minimum of one and a half years that is basically ‘brick and mortar’ technology.

Hass Consult said there was little upward momentum in house prices while rental yields were falling.

“The surge in asking prices at the end of the last year had a little impact on closing prices at the upper end of the market, in either the fourth quarter of 2010 or the first quarter of this year,” said Farhana Hassanali, property development manager at Hass Consult.

Market analysts said property was expected to hold at nearly the same prices with “no over-demand, no housing shortages in the upper market, and no momentum to support the high asking prices still being sought by many sellers”.

“The only area of substantive price growth is middle-market villas,” they said.

This is the population that is expected to search for alternative housing in the suburbs once transport becomes more convenient and predictable.

Analysts have also warned that the continuing dip in rental yields is reaching a point where it will begin to discourage new landlords from entering the market.