RUIRU, KITISURU, REDHILL AND SYOKIMAU TOP MARKETS FOR DETACHED UNITS; AND FOR APARTMENTS, THE TOP MARKETS WERE WAIYAKI W...

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11 July, 2021

Press Release

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Area Residential Report 2021, a report that highlights key performance and activities of the real estate residential sector in the Nairobi Metropolitan Area. According to the report, the residential sector registered improved performance with average total returns coming in at 5.5% in FY’21, a 0.5% points increase from 5.0% recorded in FY’20, attributed to residential average y/y price appreciation, which came in at 0.6%, 0.7% points higher compared to a price correction of 0.1% recorded in FY’20. The average rental yields recorded a 0.2% points decline to 4.8% from 5.0% FY’2020, due to reduced rental rates as landlords hoped to attract and retain amidst a tough financial environment.

“We expect the sector’s contribution to improve more for the rest of the year despite the pandemic effects supported by; i) government and private sector aggressiveness in implementing housing initiative programs having also allocated Kshs 8.2 bn in the FY’2021/22 for implementation of the same, ii) anticipated increase in the number of building approvals complemented by the planned Kshs 30.0 mn Nairobi County e-Development Permit System upgrade expected to be done by June 2022, aiming to offer faster and efficient construction approvals in Nairobi, and, iii) allocation of Kshs 3.5 bn to the Kenya Mortgage Refinance Company (KMRC) in the FY’2021/22 Budget Statement, to boost mortgage uptake thus encourage buying, building and housing construction activities,” stated Fidelis Wanalwenge, a Research Analyst at Cytonn Investments.

The Nairobi Metropolitan Area (NMA) residential market performance is summarized below;

*(All Values in Kshs Unless Stated Otherwise)*
Residential Performance Summary FY’21
Segment	Typology	Average Price Per SQM	Average Rent Per SQM	Average Occupancy	Average Annual Uptake	Average Rental Yield	Average Y/Y Price Appreciation	Average Total Returns
High-End	Detached	193,010	656	86.6%	13.6%	3.7%	1.1%	4.8%
Upper Mid-End	Detached	142,934	610	87.8%	12.9%	4.6%	1.2%	5.8%
Lower Mid-End	Detached	73,803	308	83.2%	16.3%	4.3%	1.1%	5.5%
Upper Mid-End	Apartments	124,559	684	84.9%	15.3%	5.3%	0.3%	5.7%
Lower Mid-End	Apartments	95,611	489	82.3%	16.0%	5.3%	0.9%	6.2%
Satellite Towns	Apartments	77,272	411	82.7%	16.5%	5.6%	(0.9%)	4.7%
Residential Market Average		117,865	526	84.6%	15.1%	4.8%	0.6%	5.5%

Source: Cytonn Research 2021

The detached market registered improved performance in returns, coming in at 5.4% in FY’21 representing a 0.8% points y/y increase from 4.6% recorded in FY’20. The average rental yields came in at 4.2%, 0.3% points lower than 4.6% recorded in FY’20 attributed to reduced rental rates, while house prices registered a 1.0% points y/y price appreciation, coming in at 1.1% in FY’21 from 0.1% in FY’20.

The table below shows performance of the top 5 nodes in the detached units market of the Nairobi Metropolitan Area;

*(All Values in Kshs unless stated otherwise)*
Detached Units Performance; Top 5 Markets
Area	Average of Price per SQM H1'2021	Average of Rent per SQM H1'2021	Average of Occupancy H1'2021	Average of Uptake H1'2021	Average of Annual Uptake H1'2021	Average of Rental Yield H1'2021	Average of Price Appreciation H1'2021	Average Total Returns H1'2021
Ruiru	79,138	332	83.9%	83.5%	24.9%	5.0%	1.6%	6.6%
Kitisuru	203,113	615	92.5%	90.3%	15.0%	3.8%	2.7%	6.5%
Redhill & Sigona	97,843	446	90.9%	90.9%	15.4%	5.2%	1.3%	6.5%
Syokimau/Mlolongo	75,406	367	75.7%	85.1%	16.8%	4.4%	2.1%	6.5%
Ridgeways	152,100	775	84.5%	86.2%	13.4%	5.2%	1.2%	6.3%
Runda Mumwe	152,949	635	85.2%	80.1%	14.1%	4.3%	2.0%	6.3%
Loresho	148,543	673	87.8%	82.0%	10.7%	4.8%	1.5%	6.3%

Cytonn Research 2021

Apartments recorded improvement in performance with average returns to investors coming in at 5.5% in FY’21, a 0.2% points increase from 5.3% recorded in FY’20. The average y/y price appreciation registered a 0.4% y/y increase to 0.1% in FY’21, up from the price correction of 0.3% in FY’20. However, the rental yields recorded a 0.1% points decline to 5.4% in FY’21 compared to 5.5% last year, attributable to rental rates remaining flat in a bid to attract tenants in the wake of the recovering economy.

The table below shows performance of the top 5 nodes in the apartments market of the Nairobi Metropolitan Area;

*(All values in Kshs unless stated otherwise)*
Apartments Performance; Top 5 Markets
Area	Average of Price Per SQM H1'2021	Average of Rent per SQM H1'2021	Average of Occupancy H1'2021	Average of Uptake H1'2021	Average of Annual Uptake H1'2021	Average of Rental Yield H1'2021	Average of Y/Y Price Appreciation H1'2021	Total Returns H1'2021
Waiyaki Way	87,563	520	78.8%	77.9%	21.7%	5.6%	2.5%	8.1%
Parklands	117,472	689	84.8%	83.2%	14.7%	5.6%	2.0%	7.6%
Ruaka	105,633	514	63.7%	76.0%	19.0%	5.5%	2.0%	7.5%
Dagoretti	87,565	514	86.7%	89.7%	17.4%	6.3%	1.1%	7.4%
South C	113,751	598	86.3%	64.1%	14.1%	5.9%	1.2%	7.1%

Cytonn Research 2021

Conclusion, Outlook and Investment Opportunity

We use demand, access to credit, infrastructure and performance, as the key metrics to gauge our sentiment for the sector going forward.

Key: Green – POSITIVE, Grey – NEUTRAL, Red – NEGATIVE highlights sectorial outlook

Residential Market Outlook
Measure	FY’21 Experience and Outlook Going Forward	2020 Outlook	2021 Outlook
Demand	Demand for affordable housing continues to remain high with the annual demand at 200,000 units according to National Housing Corporation, and is expected to cumulatively grow to 2.0 mn units with the government yet to realize delivery of 50,000 units every year despite the growing urbanization and population rates estimated at 4.0% p.a and 2.2% p.a respectively We therefore expect housing demand to keep rising especially in the lower and middle income areas as the government lags behind in the affordable housing program under the Big 4 Agenda	Positive	Positive
Access to funding	The government has made major steps in providing credit for affordable housing through maintaining the CBR rate at 7.0% which is expected to reduce the cost of borrowing and increase the percentage of affordable housing through mortgage financing. The government is also supporting the Kenya Mortgage Refining Company (KMRC) through budgetary allocations towards improved mortgage lending The private sector has also put in tremendous efforts to provide affordable housing financing to their clients below markets rates and with flexible repayment plans, and longer repayment periods. We however expect cautious lending due the increase in the number of non-performing loans in the sector, which are expected to continue rising amidst the tough economic times The use of Pension balances for home ownership is going to help people be able to pay part of the their house prices with pension hence increasing demand	Neutral	Neutral
Infrastructure	Infrastructural developments remain one of the key drivers of residential developments as investors look to position themselves in areas where growth and development is live in order to enjoy the price appreciations and increase in rental yields The government has reiterated its commitment to infrastructural developments having boosted its budgetary allocations in FY’2021/22 to Kshs 182.5 bn from Kshs 181.4 bn in the last financial year Notable ongoing projects include the 27-km Nairobi Express Way running from Westlands to Jomo Kenyatta International Airport (JKIA), the Northern Bypass and the LAPPSET project.	Neutral	Positive
Performance	In terms of performance, the sector recorded improved performance with average total returns averaging at 5.5%, 0.5% points higher than 5.0% recorded in FY’20, and can be attributed to y/y price appreciation, which came in at 0.6%, 0.7% points higher than a price correction of 0.1% recorded in FY’20	Neutral	Neutral

For more details, please see our report.

Notes to the Editor:

Cytonn Investments is an independent investment management firm, with offices in Nairobi - Kenya and D.C. Metro - U.S. We are primarily focused on offering alternative investment solutions to individual high net-worth investors, global and institutional investors and Kenyans in the diaspora interested in the high-growth East-African region. We currently have over Kshs 82.0 bn of investments and projects under mandate, primarily in real estate.

Cytonn Real Estate is Cytonn’s development affiliate, which is focused on developing institutional grade real estate targeted at specific institutional, high net-worth and Diaspora investors. Collective, Cytonn Investments and Cytonn Real Estate manage over Kshs 82.0 bn of real estate projects.

For more information, kindly contact:

Kevin Namunwa Teresiah W. King’ara

PR and Communications Brand Communications Coordinator

+254 757 35 3315 +254 704 59 7107

Email: knamunwa@cytonn.com tkingara@cytonn.com

Cytonn Investments Management Limited, 6^th Floor, The Chancery, Valley Road, P.O. Box 20695 – 00200, Nairobi, Kenya.

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