Real Estate: A Buyers' Market amidst a Crisis
Effie Otieno  |  Sep 29, 2020  | 
Cytonn Real Estate
Effie Otieno  |  Sep 29, 2020  |  Cytonn Real Estate

The real estate market in Kenya has always been a playground of risk for investors. The market offers are currently being tucked away until the players meet on the other side of the coronavirus pandemic.

The sector has witnessed a decline in uptake of property attributed to reduced disposable income among consumers, reduced development activities due to disruption of supply chains, the need to adhere to social distancing measures, and dwindling development financing as investors adopt a wait and see attitude in the wake of market uncertainty. As a result, the bargaining power of the buyers is currently high, as developers are making efforts to enhance revenue inflows by wooing buyers with incentives such as discounts and customized payment plans.

The financial strain due to COVID-19 has resulted to most developers showing willingness to close deals faster giving the buyers an upper hand, they can take advantage of the price drop to purchase prime properties at very affordable prices. Developers are willing to provide flexible payment terms to accommodate buyers alongside giving them huge discounts as a result of distressed sales.

According to KBA Q2’2020 report, The Housing Price Index, house prices contracted by 0.2% in Q2’2020, attributed to the economic slump which has affected both demand and supply in the residential market.  Rental prices have also been on a downward trajectory attributed to pressure on landlords to offer discounts in the wake of reduced disposable income. According to data on the Q2’ 2020 Hass Rental Index, overall prices dropped by 0.2 per cent over the quarter. In addition, reduced demand for property and upsurge in distressed sales has also resulted in the availability of a variety of options for buyers.

The market has also witnessed increased demand for affordable housing units. The housing sector has witnessed reduced uptake especially in the high-end and upper mid-end markets as consumers seek affordable housing options in the wake of reduced disposable income and a resultant stain in meeting housing needs. According to Cytonn H1’2020 Markets Review the average uptake of housing units in the upper mid-end areas for both apartments and detached units was 19.0% compared to 20.1% in Q1’2020. Therefore, the demand for apartments and detached units in the upper mid-end areas reduced by 1.1% points between Q1’2020 and H1’2020 signaling reduced demand with people opting for more affordable housing options.

In conclusion, there is no doubt that the Coronavirus pandemic is having a significant impact on the real estate sector in Kenya. With the reduced property prices and discounts, potential investors should now focus on investing in the sector with the aim of leveraging on increased property value once the economy gets back on track in the medium to long term supported by reopening strategies being introduced locally and globally.