The broke, the not-so-broke and the comfortable: Real estate trends expose class gaps

“Speak for yourself.” This is probably what goes through the minds of a section of Kenyans when someone says, “People are broke.”

While it is true most people are struggling financially, thanks to pay cuts, layoffs and slow business, others continue to live comfortably, or even luxuriously, despite the pandemic.

Real estate trends show that financial constraints are not everyone’s portion.

Housing has always been a key index for measuring wealth and poverty. To many, owning a house or a piece of land somewhere, anywhere, is associated with growing wealth, hence, real estate buyer behaviour and market trends can help us separate the haves from the haves not. Three months down the line, and the social class lines have never been clearer. Those with stable income continue to explore property investment options, while others struggle to afford basic needs such as housing.

Real estate agent Justin Njoka, at Afrique Properties Ltd, breaks down the most notable patterns in buyer behaviour in the last three months. In the home sales department, low cost properties have had the least activity. This is a market that targets the low class with homes priced at Sh2 million to Sh9 million.

Njoka has, however, noticed an increase in activity in the middle class market where houses are priced between Sh10 million to Sh20 million.

“Most of the prospects in this market segment are mortgage buyers, which means the middle class still has access to mortgage financing,” he says. Most probably, he adds, these are people whose monthly salaries remain stable.

The middle upper market has, however, been relatively dormant with few inquiries. These are properties priced between Sh20 million and Sh50 million.

On the flip side, the high-end market, whose prospects are mostly cash buyers taking advantage of new opportunities in the market, is receiving lots of inquiries.

Njoka notes: “High-end buyers are often looking for major bargains, and will ask for discounts higher than 10 per cent since they are well aware of the fact that most people can’t access mortgages, therefore sellers are likely to gravitate towards whatever cash offers they receive.” A majority of high-end prospects, he adds, are already homeowners who explore real estate as an alternative investment option.

In the land sales department, properties priced between one and five million shillings are attracting lots of inquiries while those below and above this price range rarely move. Njoka attributes this to a conspicuous pattern in the rental industry, which he explains.

“Downsizing is becoming a common scenario among the middle and middle upper tenants. Most people moving house right now are trying to cut down on monthly rent.”

Notably, these are people who have been paying more than Sh100,000 in monthly rent, and are looking for apartments priced below that amount. At the same time, this demographic of downsizers are also inquiring about land within the one and five million price range.

The pandemic obviously threatens income stability, and it’s likely that many of the downsizers are either adjusting to their reduced incomes or hoping to launch their home ownership journeys, thanks to the wake-up call the pandemic made. Downsizing is an opportunity to spend less and save more.

The last and the most interesting pattern is that there are a few people who are upgrading to apartments going for over Sh100,000 per month. Reason?

These are people whose pockets remain untouched by the coronavirus, says Njoka. It could also be people whose sources of income are thriving as the pandemic rages on, though it’s a tiny percentage of the population.

Social class gap

This breakdown paints a clear picture of the social class gap in Kenya. The low class is visibly struggling to meet daily living expenses, therefore inquiring about houses for sale is out of question. The middle and upper-middle classes may be affected, but they’re still getting by, as shown by their ability to buy homes on mortgage and inquiries for averagely priced land. Lastly, the upper class is not only comfortable, but also in a position to make the most of unique investment opportunities.

A report released by the Kenya National Bureau of Statistics (KNBS) in 2019 says there are 2.7 million workers in Kenya. Over 74 per cent earn less than Sh50,000. They make up the lower-middle and low social classes. About 36.3 per cent earn less than Sh30,000.

Ironically, those earning less than Sh50,000 a month make up essential service or goods providers in the formal sector. Only 2.89 per cent of Kenya’s workers earn more than Sh100,000.

Statistics show that these are public sector workers in the national or county government, parastatals, education administration offices, or private sector senior management staff.

The private sector accounts for the largest number of the highest paid workers. The top earners were also profiled as people with significant years of experience in their careers and more than one postgraduate certificate. The figures also revealed that top earners have a culture of saving more and spending on luxuries like vacations, while those on the lower end of the earning spectrum spend their money on essentials like housing, health, education and a bit on entertainment.

Put into current perspective, top earners are more likely to be surviving well on their savings, even if their sources of income have been disrupted. Where they still have consistent sources of income, they’re able to save more, given that they cannot spend on expensive luxuries like travel.

This leaves them with more money to live comfortably and also invest. They’re likely to be the ones taking advantage of opportunities in the real estate market, or upgrading to pricier houses.

Economist and assistant investment analyst at Cytonn Investments Maryanne Ng’ang’a profiles those investing now as people with a high risk tolerance.

Return on investment

They understand the risky nature of investing during a pandemic, but the prospect of a good bargain and a potentially high return on investment is music to their ears. She also notes that most of those who continue to live comfortably may not just be top earners relying on monthly salaries.

“They’re people who’ve ventured into side businesses or have invested in both traditional and alternative investments such as government bonds, stocks, fixed income markets and real estate.”

They’re therefore well cushioned even when they no longer have a monthly salary or if it is slashed. This explains why most high-end prospects are cash, rather than mortgage buyers. Nyaga regards inequality in Kenya as worrying.

An Oxfam International report states that less than 0.1 per cent of Kenyans own more wealth than the rest of the 99.9 per cent citizens. This paints a picture of uneven distribution of resources. The World Bank, in 2015, put Kenya’s inequality gap — among the world’s highest — at 40.8 per cent.

While saving and investing in alternative sources of income can improve one’s social class, Ng’ang’a says that access to basic resources such as education and healthcare are the sure-fire way to bridge this gap.

Contrary to this, a majority of people think that factors such as availability of jobs, hard work and justice could help bridge the gap. Picture this however: there are plenty of high-paying jobs, but job seekers lack the training or the education to take up these jobs and deliver. Alternatively, they’re well educated but too sick to work. Would the economy really grow?

Equal access to education and healthcare, Ng’ang’a says, give the population a near-equal fighting chance, and yet this chance is extremely compromised at the moment as some children continue to attend online classes, while those from rural areas and poor urban settings lack access to the tools that make remote learning possible. We can only imagine the long-term effects of this.

Take the opportunities

Inequality becomes even more problematic when most of the resources are placed in the hands of just a few. Crime, drug addiction and extreme poverty eventually take over, thus crippling the economy. An economy can only be healthy when a majority of the country’s population can work and build it.

Regardless of these inequalities, those who have a chance should take the opportunities presented by the pandemic. This will prevent a scenario whereby only a few individuals own the critical resources

Bear in mind also that schools and hospitals can only be built on real estate.

It’s clear that with a stable monthly income, one can save more during this time since entertainment joints and travel destinations are out of reach.

For those hoping to invest in real estate or launch their home ownership journeys, the opportunities are beginning to open up.

Wacu Mbugua, a real estate research analyst, says the property market is now a buyer’s market and that cash buyers are in luck. It is, however, important to evaluate the investment options and settle for the best and most reasonable ones, rather than invest blindly.

“Real estate investments are long-term. What’s profitable at the moment could turn into a less profitable venture in the future,” Mbugua says.

Take for instance the middle-upper apartments that have always been a lucrative venture for able investors. In the recent past, prices for such apartments have dropped significantly due to oversupply. Besides, such apartments are often occupied by expatriates, most of whom have travelled back to their countries as they wait for the pandemic to peter out.

In view of this, Mbugua advices discerning investors to think long-term and have a clear target market in mind.

While it may seem counter-intuitive to invest in low-cost housing, at the moment (given that low income earners may not make steady payments at the moment), statistics show that this demographic is bigger, therefore, there will never have an oversupply of low-cost rentals or houses for sale. There will always be customers looking for such properties.

For those who have already invested in rental properties, there is an opportunity to attract downsizers. Now, many people have the time and the motivation to move house. If you own rentals in an area with a surplus of similar properties, create a competitive edge for the potential customers.

For instance, most of them are working from home and so need access to Wi-Fi. You could reel them in by offering free Wi-Fi.

If the property occupies a large compound, a designated children’s play area with safety measures in place to prevent crowding would be the cherry at the top of the cake for parents who need to work from home while keeping an eye on their children.

And if remote working is the future of work, investors could start thinking of home offices for the high-end market when designing homes for sale or rent. It all narrows down to rethinking customer needs and addressing them in a way that creates a win-win situation for all.

Inequality in numbers

Three-quarters of Kenya’s working population occupy the middle lower and lower social classes. This is the right demographic to target when investing in real estate for returns.

Kenya is ranked as having the ninth highest number of primary school aged children who are unable to access education.

36.1 percent of Kenyans were living below the poverty line as of 2015/16