Where to get big money in real estate

The real estate sector has been on an upward trend for the past decade. Prices of houses and land have appreciated over time, and at one point Nairobi was ranked the hottest property market in the world.

The Wealth Report 2012 by Knight Frank and Citi Private Bank, a subsidiary of Citigroup, showed that property prices in Nairobi and Mombasa increased by double-digits, earning the two towns first and second positions respectively out of 71 cities surveyed globally.

They were placed in the “safe haven” category of the report, meaning that they were best places for investors to put their money ahead of more famous destinations like Miami, London and Monaco.

The Africa Report released mid last year by Knight Frank showed that although insecurity and an increase in the number of high-end properties led to prices cooling off in 2014, the prospects remain encouraging.

Despite this property market hiccup, which was also occasioned by terror attacks, among other factors, the market is still ripe for investors.

“The property market in Kenya has seen growth since the boom began in 2010, and it is expected to stay steady. But I am seeing a situation where developers are putting a lot of thought into new developments and we should expect new ideas in terms of designs, presentation and location,” said George Muhandi, an architect and project manager at Imperial Concepts, a construction firm.

Upward trend

Real estate consulting firm, Hass Consult, also said that the property market is on an upward trend, expressing optimism it would not stagnate in the near future.

A second-quarter property index report by the firm stated that the average value for some property has gone from Sh7.1 million in December 2000 to Sh26.7 million in June last year – a three-fold growth.

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The reports show confidence in the real estate industry, and despite the inflation rate and weak shilling, investors who are prepared to venture into the sector in future are set to reap good returns.

However, as the new year unfolds the question in every developer’s mind is where to put their money.

While the residential property market has performed relatively well over the last ten years, luxury and commercial properties are yielding better returns. Luxury properties target high net-worth individuals, are located within affluent areas and are tastefully designed and finished.

Developers who are optimistic about the future of prime properties have projects that are under way.

Aviation Industry Corporation of China (Avic) is set to construct the most expensive apartments in the country. Avic has already received the green light to start construction works of the four-, three- and two-bedroom apartments in Kileleshwa.

The four-bedroom luxury apartment will each cost Sh88 million, while the three- and two-bedroom apartments will sell at Sh38 million and Sh27 million respectively.

Avic says it is targeting consumers with strong purchasing power and a taste for luxury living.

English Point Marina, Shaza Project by Shanzu Beach Resort and the Sultan Palace are examples of prime projects in Mombasa.

Shaza Project has started constructing the second phase after its first phase sold out months after the apartments with a beach-front view were put on the market in December 2014. The two- and three-bedroom apartments sold for between Sh32 million and Sh42 million respectively.

English Point Marina is a development mainly targeting business travellers. The Marina, which is almost complete, includes 96 apartments and eight penthouses. The project has proved to be hot property with the cost of a penthouse currently pegged at Sh200 million, double the original price.

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Such high-end developments have had to ensure the availability of additional facilities like restaurants, gyms and clubs to attract clients.

According to the Knight Frank Prime Global Cities Index – which tracks luxury house prices in 34 cities – the third-quarter statistics showed Nairobi prices increased by 3.5 per cent in the 12 months to September last year.

“While it is taking a little longer to close deals, we are beginning to sense a slight increase in interest in the prime properties on offer,” said Ben Woodhams, managing director Knight Frank Kenya during the unveiling of the Q3 statistics.

Safe bet

High-end developments are a safe bet for investors as the outlook reveals that prime properties will continue to rake in profits. The prime developments make sense even when the lending rates (as was the case in 2014 and 2015) are high because the target clients are not relying on bank loans.

During the release of Q2 index, Ms Sakina Hassanali, head of research and marketing at Hass Consult said, “‘Development Dollars’ were routed to high end property investments during the times of high lending rates as interest costs were prohibitive for lower cost housing buyers. This in turn saw a rise in demand for rental property and a subsequent increase in rental prices.”

Investors should also look into investing in commercial properties since they have also proven to yield decent returns. Commercial properties include office blocks and mixed use developments – like Garden City, Le’Mac and Two Rivers – that embrace modern living and incorporate work and leisure facilities.

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If deciding to put up offices, developers should ensure extra amenities like spas are available to appeal to a larger clientele.

Invest in Lavington

Investments would ideally be in areas like Westlands, Lavington and Parklands where returns are highest. If investing in office blocks, Lavington attracts the highest price for office space per square foot at Sh14,500 while Mombasa Road remains the lowest at Sh8,800, according to Office Space Kenya.

William Kabue, managing director Certiorari Real Estate, said that commercial space is likely to fetch more money than residential buildings.

“Commercial space has higher returns especially in high demand areas like Westlands because the target market has the purchasing power. Space is sold per square foot yielding even better returns,” said Mr Kabue.

Mr Muhandi reckons that mixed use properties will yield better returns. These, he says, need to be where people can work and live and have easy access to facilities like restaurants and shops. When opting to build apartments, he says, investors should settle for serviced apartments with a restaurant, gym and other amenities.

This will ensure a 90 per cent occupancy rate throughout the year.

“Buyers are always looking for value for money and the setting of this type of property (serviced apartments with a restaurant) must be well thought-out. Investors should be willing to go an extra mile like getting reputable hotels to be the anchor tenants,” he said.

His parting shot: “As an investor, you have to diversify and introduce new and unique concepts to remain afloat in the business.”

First published in the Business Daily.

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