Looking at the property sector one will notice that rental yields are on a downward trend in Kenya.This is a sign that things are set to become a bit stormy for developers who invested in high-end apartments.Indeed it will take them a longer time now to recover capital mobilized into a property.
Furthermore, developers who took mortgage loans from financial institutions to build rental properties have to dig deeper into their pockets to increase their monthly mortgage payments. This is widely refereed to as negative equity. This occurs when property prices appreciate quickly over a short time but rents remain the same over the same period. This is not good news for developers as it has been widely seen as the most fertile ground to invest be many.
Facts from the ground shows that while property prices have double or in some cases even tripled,the rental income charged on apartments has remained more or less the same. Pricing in the residential housing market shows that property prices have risen by about 55 per cent in the last three years, while rents have risen by about 18 per cent over the same period,this has resulted in thinning out returns on investment.
The depressed rental yield is largely attributed to increased supply of apartments and townhouses in the past couple of years as developers moved with speed to provide high density housing to maximise returns, while buyers’ preference shifted to stand alone units.The current lifestyle desires are fuelling demand for stand-alone houses, which has continually reported the highest gains on both value appreciation and rent income since beginning of 2009.
The findings seem to portray that asking prices rose more slowly in the first quarter of the year than in the final quarter of last year, but the gap between asking and closing prices continued to widen, driven by an ambitious pricing of apartments and maisonettes.
In addition, middle-income market villa sales recorded the strongest price rises of the quarter, while up-market villa prices were more stable even as the apartments and maisonettes rarely closed at asking prices.Its also clear that the market is not supporting price rises in the apartment segment.On rent, the rental market remained depressed, with rents asked for townhouses on a downward trend especially in the first quarter , almost to the point where we expect it will begin to discourage new landlords from entering the market.Its important to note that trouble lies ahead for the real estate market as a result of soaring land prices in and around urban areas.The current trends could leave the country’s cities with a ‘dead stock’ of outer-city apartments and maisonettes. The disparity in demand was already apparent.
Only time will tell but remedial actions need to be taken such as lowering the cost of contraction and focusing more on middle and low cost houses rather than high end market houses.
Sources:
HassConsult Property Index third Quarter
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