Upper Hill, Kilimani among most expensive in Nairobi

For a long time trading in gold was viewed as a sure-fire way to make money but today’s investors are looking at the ground beneath their feet to get them hefty returns.

According to a report done by Hass Consult titled, Urban Land rises as Kenya’s gold standard,  land in Nairobi now offers a lot more financial gain than gold, property, livestock and oil.

“From 2007, land prices have risen five-fold,” says Ms Sakina Hassanali, head of research and marketing at Hass Consult.

The report, which is  the first land index to be unveiled in the country, also revealed that buying land in Nairobi is out of reach for many individuals and this has forced them to look further afield when it comes to buying land.

Comparing advertised land prices over time, the report showed that over a period of seven years, land prices rose by 535 per cent in Nairobi thus making the sale of land the most profitable business in Nairobi.

“The index which compares Nairobi’s land price movements to other asset classes and commodities found that the city’s land had outperformed all other asset classes as return on investment,” said Felix Gichaga from Stanlib, an investment company that partnered with HassConsult to conduct the research.

MAJOR IMPACT

Ms Hassanali said more than 10,000 land records were evaluated and the return on investment could be compared to international indices for gold, oil and cattle.

In the Kenyan scenario, land in prime areas was compared to cattle which was found to be the next best investment with a 72.3 per cent increase.

According to Kenneth Kaniu, Chief Investment Officer of Stanlib, the data shows that return on investment in Nairobi’s prime land (Central Business District and the suburbs) is quite remarkable though it remains unaffordable to many people.

“The galloping land prices in the city are being driven predominantly by commercial and high density residential developments,” says Mr Gachaga.

This can be confirmed by the number of high rise residential and commercial buildings coming up in Westlands, Upperhill and Kilimani.

The most expensive land can be found in Upper Hill where an acre is currently going at Sh470 million followed by Kilimani at Sh370 million an acre and Westlands where an acre is Sh360 million.

When it comes to residential areas, an acre in Spring Valley, which is a high end low density area, goes for Sh140 million whereas the cheapest residential areas are Karen and Lang’ata where an acre of land amounts to Sh45 million.

An acre in Runda is around Sh67 million while the same in Kileleshwa and Lavington goes for Sh250 million and Sh200 million respectively.

“This has put the city’s land prices into a bracket of investment that is in a league of its own. But we need as investment managers, is to understand what is leading to this trend so as to make decisions that will enable us to get maximum profitability,” says Kaniu.

These factors include zoning which plays a role in determining the price per acre.

“Zoning had a major impact on the price of the specific acreage, with the land suitable for high density development fetching higher prices than the land that can only be used for low density housing,” he adds.

This can be confirmed by the prices of one acre of land in Westlands, both a commercial hub and residential area compared to an acre in Karen.

Zoning is the subdivision of land to parcels for different use. If a piece of land is zoned for commercial or residential use, then the price automatically goes up, explains Mr Kaniu.

Still, this is not the only reason land prices have sky rocketed. Other intertwining factors are at play. This include accessibility, infrastructure and desirability. The more accessible the land is, the higher the price is.

OVER PRICED

Mr Kaniu explains: “The pressure on land prices is caused by inherently limited supply of land close to key city centre clusters.”

This land however may not keep on appreciating because where the trend continues it forces people to look for land outside these areas, thus creating nodes outside the city as is currently being witnessed in Nairobi.

High prime land prices have thus created the estates sprouting up away from the city, and Mr Kaniu is confident that with time the prices may come down,

“This makes the city’s evolving shape key to the choice of location for land buying, central does not always guarantee return,” says Mr Kaniu.

“We are witnessing a situation where due to overly priced land within the city, people are moving outside because they want to develop. This therefore has resulted to commuter estates on the outskirts of Nairobi,” says Patricia Githu, Chief Execuitive Officer at Developing Afrika.

And therefore, Nairobi residents will be better off looking for land outside Nairobi at the moment and speculate about the most appropriate time to buy prime land.

As a result, land in these researched areas is currently more affordable to companies, institutions and investment groups, says Ms Hassanali.

Prices of land in these areas may not come down any time soon, which is of great concern to developers since this directly affects rent prices for apartments.

Numerous developers have decided to buy land far away, sometimes even 50 kilometers from the city.

“Most developers who want to meet the rising demand in housing have no alternative but to seek land outside the city to put up houses,” says Ms Githu.

Experts agree that the formidable land prices have locked out home owners who want to build in Nairobi.

Mr Alex Muema the Managing Director of Ndatani Enterprises says that it is almost impossible to get land within a radius of 20 kilometers in Nairobi for a home owner. 

“Land is only affordable in Nairobi for those who want to build office blocks. This is because such investment will require capital which only companies can afford compared to individual people,” says Ms Githu.

Mr Pete Muraya of Suraya Group says land prices in Nairobi are almost exploitative and thus the need to review land pricing mechanisms.

This is because developers hoping to construct houses or commercial buildings face an even higher expenditure.

He suggests that the government could  control land prices through the concerned authorities like the National Housing Corporation by constructing houses on vacant land within the city centre and then pricing the houses at a cheap buying price.

This would have a cascading effect on private developers and investors who would be forced to bring down land prices.

“We are now among countries like United Arab Emirates and Singapore, home to some of the most expensive properties in the world, yet we are left behind in terms of infrastructure when compared (with) these countries and cities,” says Mr Muraya.

GOLD STANDARD

According to HassConsult, since 2007, the land prices in Nairobi have gone up because of the increased demand for housing and the appetite for the middle income bracket to own homes.

As a result many companies and investment groups have set up shop within the city and this has had a profound influence on land prices.

The average price per acre was a little over Sh30 million in 2007, but is now more than Sh170 million today. 

Commercial and high-density housing are driving the pricing and this explains the high cost of land in places like Upper Hill and Kilimani.

Urban land has delivered the highest return of all asset classes in the last seven years, followed by property which has gone up by 98 per cent from 2007.

Land prices in the last four years have risen at twice the rate of cattle, and four times the rate of property, while oil and gold prices have fallen over the same period.

According to experts, Eastlands in Nairobi will also see more investment after the construction of the Outering Road is completed.

As land prices continue to go up, rent will also increase, warned Ms Hassanali as has been confirmed by rental prices for apartments going up with the highest recorded being Embakasi at 31 per cent followed by Lang’ata at 27.9 per cent.