Residential Sector Q1’2021 Markets Review Note:

By Research Team, Apr 13, 2021

Residential Sector Q1’2021 Markets Review Note:

For detached units, top 3 markets were Rosslyn, Ruiru and Kitisuru, and for apartments, the top 3 markets were Westlands, South C, and Ruaka.

During Q1’2021, the residential sector recorded increased activities supported by; i) increased transactional volumes following improved liquidity with gradual reopening of the economy, ii) improved access to mortgage loans thus encouraging uptake of units, and, iii) continued focus on the affordable housing agenda aimed at delivering affordable homes for Kenyans.

In terms of performance, the sector recorded improvement, with y/y average total returns to investors coming in at 5.1%, up from 4.7% recorded in FY’2020. Prices in all segments saw an uptick with an overall y/y average price appreciation of 0.5% in the residential market while the y/y average rental yield recorded a 0.2% points decline to 4.7% from 4.9% recorded in FY’2020 attributed to reduced rental rates in the wake of a tough operating environment.

The chart below shows performance of average rental yields in the last five years;

Source: Cytonn Research

   A. Detached Units Performance

Detached units recorded an improvement in performance in Q1’2021 compared to FY’2020 with y/y average returns to investors coming in at 4.8%, a 0.6% points increase from 4.2% recorded in FY’2020. This was attributed to gradual reopening of the economy, that saw transactional volumes pick amid a tough economic environment. Average y/y price appreciation in the detached market saw a 0.7% points increase from 0.1% in FY’2020 to 0.8% in Q1’2021 showing their resilience to economic slowdowns amid a pandemic.

Detached Units Performance Summary Q1’2021

Segment

Average Rental Yield Q1'2021

Average Y/Y Price Appreciation Q1’2021

Average Y/Y  Total Returns Q1’2021

Average Rental Yield FY'2020

Average Y/Y Price Appreciation FY'2020

Average Y/Y  Total Returns FY'2020

q/q  Change in Rental Yield (% Points)

q/q Change in Price Appreciation (% Points)

q/q Change in Total Returns (% Points)

Detached Units

High End

3.6%

1.0%

4.6%

3.8%

0.6%

4.4%

(0.2%)

0.4%

0.2%

Upper Mid-End

4.5%

0.5%

5.0%

4.5%

(0.3%)

4.2%

0.0%

0.8%

0.8%

Satellite Towns

4.1%

0.7%

4.8%

3.9%

0.1%

4.0%

0.2%

0.6%

0.8 %

Average

4. 1%

0.8%

4.8%

4.1%

0.1%

4.2%

0.0%

0.7%

0.6%

The upper mid-end segment was the best performing segment with a y/y average total return of 5.0%, with Runda Mumwe and Ridgeways offering the highest y/y average total returns at 5.7% and 5.3%, respectively. The best performing node was Rosslyn recording the highest y/y average returns at 6.7% attributed to the relatively high rental yield averaging 4.3% in Q1’2020, 0.2% points higher than the detached market average which stood at 4.1%. Ruiru and Kitisuru came in second and third place respectively, at 6.3% and 5.9%, respectively, while Rongai offered the lowest returns at 2.0%.

(All Values in Kshs unless stated otherwise)

Detached Units Performance Q1'2021

Area

Average Price per SQM Q1'2021

Average Rent per SQM Q1'2021

Average Occupancy Q1'2021

Average Uptake Q1'2021

Average

Annual Uptake Q1'2021

Average

Rental Yield Q1'2021

Average Y/Y Price Appreciation Q1'2021

Average Y/Y Total Returns Q1'2021

High-End

Rosslyn

177,615

744

84.7%

97.1%

12.5%

4.3%

2.4%

6.7%

Kitisuru

231,719

776

89.1%

88.1%

14.7%

3.9%

2.0%

5.9%

Lower Kabete

154,600

521

75.5%

72.7%

14.3%

2.3%

2.3%

4.6%

Karen

189,301

730

80.3%

89.2%

14.3%

3.7%

0.0%

3.7%

Runda

235,567

824

88.1%

93.4%

10.3%

3.8%

(1.6%)

2.2%

Average

197,760

719

83.6%

88.1%

13.2%

3.6%

1.0%

4.6%

Upper Mid-End

Runda Mumwe

152,759

639

81.0%

82.1%

14.2%

3.7%

2.0%

5.7%

Ridgeways

149,503

775

82.2%

84.5%

13.0%

5.1%

0.2%

5.3%

Langata

161,305

566

78.7%

94.8%

10.5%

3.8%

1.2%

5.0%

Redhill & Sigona

97,432

480

74.8%

71.5%

12.0%

4.8%

0.2%

5.0%

South B/C

125,025

537

93.3%

69.1%

11.1%

4.9%

(0.8%)

4.1%

Average

137,205

599

82.0%

80.4%

12.2%

4.5%

0.5%

5.0%

Lower Mid-End

Ruiru

80,003

319

72.9%

84.2%

24.9%

4.2%

2.1%

6.3%

Juja

61,881

328

74.2%

89.0%

14.1%

4.7%

1.0%

5.7%

Syokimau/Mlolongo

73,976

350

88.3%

72.0%

13.9%

4.9%

0.3%

5.2%

Kitengela

70,719

306

91.5%

82.9%

14.2%

4.6%

0.6%

5.2%

Athi River

83,154

309

82.3%

89.1%

14.8%

3.7%

0.7%

4.4%

Rongai

82,405

233

65.4%

73.0%

10.8%

2.5%

(0.5%)

2.0%

Average

75,356

307

79.1%

81.7%

15.4%

4.1%

0.7%

4.8%

Source: Cytonn Research 2021

B. Apartments Performance

Apartments registered slight improvement in Q1’2021 with average total returns recording a 0.1% points marginal increase to 5.3% y/y from of 5.2% y/y in FY’2020. Satellite towns continued to be the best performing segment with an average total returns stagnating at 5.5% attributed to their relatively high rental yield averaging 5.4%.

Apartments Performance Summary Q1’2021

Segment

Average Rental Yield Q1'2021

Average Y/Y Price Appreciation Q1’2021

Average Y/Y  Total Returns Q1’2021

Average Rental Yield FY'2020

Average Y/Y Price Appreciation FY'2020

Average Y/Y  Total Returns FY'2020

q/q  Change in Rental Yield (% Points)

q/q Change in Price Appreciation (% Points)

q/q Change in Total Returns (% Points)

Apartments

Upper Mid-End

5.2%

0.1%

5.3%

5.2%

0.0%

5.2%

0.0%

0.1%

0.1%

Lower Mid-End

5.0%

0.2%

5.2%

5.8%

(0.9%)

4.9%

(0.8%)

1.1%

0.3%

Satellite Towns

5.4%

0.1%

5. 5%

6.0%

(0.5%)

5.5%

(0.6)%

0.6%

0.0%

Average

5.2%

0.1%

5.3%

5.7%

(0.5%)

5.2%

(0.5%)

0.6%

0.1%

The best performing node in terms of returns was Westlands with a y/y average total return of 6.8% attributed to house prices recording a 1.6% y/y average price appreciation, which was the highest in the apartments market. South C and Ruaka came in second and third place respectively, recording average y/y total returns of 6.5% and 6.2% respectively, attributed to their relatively high rental yields at 6.4% and 5.4%, respectively. In general, apartment prices in all segments recorded an uptick attributed to the slight increase in demand amid reduced prices that wooed buyers into purchasing units.

(All Values in Kshs unless stated otherwise)

 

Apartments Performance Q1’2021

Area

Average  Price Per SQM Q1'2021

Average  Rent per SQM Q1'2021

Average Occupancy Q1'2021

Average Uptake Q1'2021

Average

Annual Uptake Q1'2021

Average

Rental Yield Q1'2021

Average Y/Y

Price Appreciation Q1'2021

Y/Y Average Total Returns Q1'2021

Upper Mid-End

Westlands

146,032

783

78.5%

83.0%

18.7%

5.2%

1.6%

6.8%

Parklands

117,851

730

83.7%

78.3%

14.2%

5.8%

0.1%

5.9%

Kilimani

104,470

709

88.9%

90.5%

23.5%

5.8%

(0.1%)

5.7%

Loresho

120,877

564

89.2%

80.0%

9.4%

5.0%

0.3%

5.3%

Upperhill

130,608

710

77.0%

78.3%

10.9%

4.2%

(0.1%)

4.1%

Kileleshwa

124,714

625

85.2%

76.5%

14.7%

5.1%

(1.6%)

3.5%

Average

124,092

687

83.8%

81.1%

15.2%

5.2%

0.1%

5.3%

Lower Mid-End: Suburbs

South C

114,104

675

96.8%

69.8%

14.2%

6.4%

0.1%

6.5%

Waiyaki Way

87,624

498

79.0%

76.7%

21.8%

5.2%

0.6%

5.8%

South B

103,763

445

70.9%

71.2%

15.2%

4.0%

1.1%

5.1%

Kahawa West

73,794

365

85.3%

77.5%

14.3%

5.4%

(0.5%)

4.9%

Langata

114,460

499

84.0%

82.4%

13.3%

4.2%

(0.4%)

3.8%

Average

98,749

496

83.2%

75.5%

15.8%

5.0%

0.2%

5.2%

Lower Mid-End: Satellite Towns

Ruaka

100,757

494

66.4%

74.0%

18.2%

5.4%

0.8%

6.2%

Thindigua

107,336

543

77.3%

73.0%

12.1%

4.7%

1.3%

6.0%

Rongai

60,908

339

90.2%

94.2%

28.6%

6.1%

(0.1%)

6.0%

Ruiru

89,888

510

66.4%

63.9%

17.2%

4.5%

1.1%

5.6%

Ngong

58,015

306

86.4%

70.7%

11.4%

5.4%

0.1%

5.5%

Kikuyu

81,115

483

85.8%

96.9%

22.0%

6.4%

(1.2%)

5.2%

Athi River

58,400

290

91.2%

91.4%

12.8%

5.5%

(1.8%)

3.7%

Average

79,488

424

80.5%

80.6%

17.5%

5.4%

0.1%

5.5%

Cytonn Research 2021

Our outlook on the residential sector is NEUTRAL as we expect total returns to investors to improve following increased market activity. However, we expect reduced rental rates and house prices to continue affecting the rental yields and capital appreciation of properties hence a slowdown residential sector performance. The investment opportunity for detached units lies in submarkets such as Rosslyn, Kitisuru, Runda Mumwe, and Ruiru while for apartments it lies in areas such as Westlands, South C, Ruaka and Thindigua which continued to post high returns.

For more information, please see our Cytonn Q1’2021 Markets Review.