Feb 14, 2016

The real estate sector continues to gain a lot of prominence in the economy contributing about 8% of the Kenyan GDP. In 2015, the real estate sector recorded an annual growth rate of 14%, the highest in the country. We have also seen a lot of global cement companies seeking to set shop in Kenya, with the most recent one being India based UltraTech Cement seeking to buy a stake in ARM. The growth in the sector can be attributed to increased demand for residential property with most realtors shifting focus to development of apartments, villas, maisonettes and bungalows in areas around Nairobi and other major town. The key drivers for real estate developments have been:

• Infrastructural developments in the country
• The growth in the middle class
• Population growth
• High rate of urbanization

At an approximated average annual housing deficit of 200,000 units, Nairobi is an attractive market for residential developments. However, owing to the relatively high land prices in the area, most of the developments are mainly vertical apartment buildings. High land prices have pushed developers and investors into the city’s satellite towns where prices are relatively lower and ranging widely from as low as Ksh 3 million per acre in Ongata Rongai to as a high as over Ksh 50 million per acre in Kiambu. Our research indicated that the target market for land in satellite towns are mainly individuals within the middle income class. It also indicated that households in this segment are mainly motivated to settle by the desire to own a home.

Our real estate research team conducted further research on select Nairobi satellite towns with a key aim of identifying the settlement characteristics of households in these areas. The research mainly focused on 5 key points:

• Time taken between land acquisition and settlement: This helped in identifying movement patterns into the satellite towns as well test the likelihood of hindrances to settling,
• Payment plan for land acquisition: This helped in identifying the most favourable payment plans for residents,
• Mode of financing for land acquisition and construction: This enabled us gauge the income class of residents in the respective towns as well as better clarify reasons behind time scales taken to settle down,
• Infrastructural challenges: This helped identify the main challenges within these towns as well as point out the key areas that the real estate industry should focus when developing property in these towns

The key findings were as summarised below:

I. No of years of acquisition

II. Time taken to settle

III. Motivation to acquire land in the area

Key Takeout: Most households used personal savings to finance land acquisition. A few households complimented their personal savings with either bank or Sacco loans. Savings groups (chamas) made this possible as households reported to have bought land in groups and later subdivided it amongst themselves.

Key Takeout: Most families used personal savings for construction of houses as well. Savings groups (chamas) also played a big role in this area, indicating their importance in the growth of the real estate sector.

Key Takeout: Most households bought land on cash terms. Households in these areas most likely fall within the lower middle income class and are beneficiaries of well-structured payment plans for land acquisition.

VII. Key challenges faced in the area

Conclusion

Land acquisition in Nairobi’s satellite towns is mainly driven by the desire to own a home and settle down. Owing to the large number of middle income earners currently relocating to such areas, industry players in real estate should strive to provide products that speak to the specific needs of clients in every category. Provision of key infrastructural amenities such as good roads, water, sewer reticulation and power should form a key component of the property on sale. In addition, well thought-out and structured payment plans should be put in place to enable clients across all income brackets acquire land and develop within the shortest time period.

In reference to our Cytonn Sharp-land projects in Ongata Rongai and Athi River for instance, infrastructural services are being addressed through the provision of electricity, construction of roads for easy access as well as provision of adequate and reliable water sourced from boreholes. In addition, we have gone the extra mile to structure payment plans that fit every income class, where clients purchase property on monthly instalments ranging from as little as Ksh 25,000 with an option for a zero deposit agreement. The Ongata Rongai property sits on a 60acre piece of land, 100m off the Ongata Rongai - Kitengela road, 3Km from Tuala Township and is currently selling at early-bird offer price of Ksh 850,000 per 1/8acre plot. For enquiries and more information, you can reach by texting the word “sharp” to 22102, calling us on 0709 101 000 or emailing us on sales@cytonn.com

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Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted- as the facts may change from time to time. This publication is meant for general information only, and is not a warranty, representation or solicitation for any product that may be on offer. Readers are thereby advised in all circumstances, to seek the advice of an independent financial advisor to advise them of the suitability of any financial product for their investment purposes.