So, here is the big question; is there a property bubble in Kenya? This query has popped up repeatedly, especially in local property market fora. And according to Mr. George Wachiuri, the CEO of one of the leading property firm in Kenya, Optiven Limited, a property bubble isn’t something that is envisaged in Kenya in the next 100 years.
The CEO who also currently serves as a Board Director of the Kenya Property Developers Association points out that Kenya’s economy is still very young and it isn’t anywhere close to mature economies such as the United States of America or Europe, which have had an experience of property bubbles.
According to Investopedia, a housing bubble ordinarily starts with an increase in demand, in the face of limited supply, which takes a relatively long period of time to replenish and increase. Speculators enter the market, further driving demand: Then at some point, demand decreases or stagnates; at the same time supply upsurges, resulting in a sharp drop in prices – and puff! The bubble bursts.
For such a bubble-burst to happen, Mr Wachiuri points out that one of the key ingredients is over-borrowing from banks to fund property purchasing.
“Kenya is not a credit economy, it is a consumer economy. We do not depend on borrowing. In fact, we have very few mortgages – actually insignificant, we have about 24, 000 mortgages against a population of 48 million. There is no threat of people not able to pay and then the banks taking up these properties. Many people here in Kenya opt to develop their own homes, and if you want to know that Kenya is not a credit economy, try to borrow money from a bank, it’s very tedious to get a bank facility to purchase properties,” says Mr Wachiuri.
According to Mr Wachiuri, Kenya is in ‘kindergarten’ in terms of the property market, an economy that is too young to experience what happens in Europe. He notes: “These are matured economies; these are economies where credit is available at the lifting of a phone. You call and you get money into the account, you don’t need to go and negotiate for the credit, you can apply online. Things are different in Kenya, because getting credit here is not easy.”
Some two key indicators of a property bubble. Number one, people are unable to service their mortgages. Once they are unable to service their mortgages, banks come in calling for the re-payment of mortgages. The banks then reposes the property. But they go out there and they are not able to sell because everybody is under economic pressure. So they end up selling these properties at a throw away price.
Number two; property prices drastically drop because there is oversupply and less demand. In A bubble is characterized by poor property uptake or as low as 0% to 10%. And according to Mr Wachiuri, Kenya is way off this line; there is more demand and under-supply. There is a shortage of 150, 000 houses a year.
He notes that the demand for real estate is increasing and it is first being fueled by our growing population. Right now, Kenya has an estimated population of 48 million and according to recent UN projections; this country’s population will hit the 85 million mark by 2050. This means that those people who are being born require residential homes and commercial space.
“Kenya has also seen exponential middle class growth. These are the people who are able to get mortgages, and able to construct their own homes. This middle class is fueling a lot of growth in the real estate,” says the Mr Wachiuri, who also holds a Masters of Business Administration from University of Nairobi.
The CEO also notes that Kenya has a huge numbers of expatriates. These, according to him, are people who are working for international organizations like the United Nations, the IMF, and the World Bank and for big multinationals that have established their regional hubs in Kenya like Google, Foton, Visa Inc, Volvo, amongst others. These are people who require prime properties in Kenya.
There are also many African top investors who have come to set their bases in Kenya. These are high-net-worth individuals are also coming into the East African economic powerhouse space to buy their second homes. They are also placing real estate to the next level. Kenya has seen the likes of Flavio Briatore putting up properties worth billions of shillings in Malindi.
Kenya has also been witnessing a lot of diaspora inflows. According to Diaspora Remittance Fact Book 2016, Kenya received Kshs163 billion in 2016 and it is being projected that the country will receive more. “If you look at countries like Nigeria, they received 2.3 trillion with Kenya receiving 2 trillion. Kenya was number 3 on remittance (in 2016) and these are official remittances. This means that unofficially, this country could be receiving 4 times more. 60% of this money goes to real estate with the other percentage going to support families and these are the people who are making the real estate prospects to continue looking up way into the future,” notes Mr Wachiuri.
He also points out that Kenya is also seeing huge amounts of infrastructural developments. The Kenyan Government has been rolling out huge projects that range from LAPSET, Standard Gauge Railway, and the Turkana Wind project. He adds, “We also have key private projects like the Two Rivers Mall, English Point Marina, and a host of new multinational chain hotels.”
The Optiven CEO notes that one more reason why Kenya does not envisage any bubble in the near future, is that the country has witnessed many of its citizens develop properties from their personal savings or borrowing from Saccos as opposed to bank loans hence posing on credit issues.
Bottom line, the possibility of whether there is a property bubble in Kenya is as far from reality as the earth is to the blue skies.
By Muchiri Muchoki