“RUIRU, RUAKA AND WAIYAKI WAY WERE THE BEST PERFORMING RESIDENTIAL NODES IN THE NAIROBI METROPOLITAN AREA WITH TOTAL RET...

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8 May, 2023

Press Release

FOR IMMEDIATE RELEASE

“RUIRU, RUAKA, AND WAIYAKI WAY WERE THE BEST PERFORMING RESIDENTIAL NODES IN THE NAIROBI METROPOLITAN AREA WITH TOTAL RETURNS OF 7.9%, 7.5% AND 7.2%, RESPECTIVELY, AGAINST MARKET AVERAGE OF 6.2%”

Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their Nairobi Metropolitan Area Residential Report 2023. The report the residential sector's performance in the region in terms of price appreciation, rental yields, and market uptake, based on the coverage of 35 regions within the Nairobi Metropolis. It also outlines factors influencing residential supply and demand, current developments affecting the industry, and the available investment options in the sector.

Nairobi Metropolitan Area (NMA) Residential Sector Performance

According to the report, the residential sector realized an improvement in its overall performance, with the average total returns improved in FY’2022/23 to 6.2%, a 0.4%-points increase from 5.8% recorded in FY’2021/22. This was mainly attributable to residential average y/y price appreciation, which came in at 1.1%, 0.2%-points higher compared to a price appreciation of 0.9% recorded in FY’2021/22.

The improvement in performance was largely driven by: i) infrastructural development, ii) government and private sector focus on affordable housing, and iii) focus on mortgage financing through the KMRC. However, various challenges, such as constrained access to financing for developers and rising construction costs due to inflationary pressures, hampered the sector’s optimal performance. The Nairobi Metropolitan Area (NMA) residential market performance in FY’/2022/23 is summarized below;

*All values in Kshs, unless stated otherwise*
Cytonn Report: Residential Sector Summary FY’2022/23
Segment	Average Price per SQM	Average Rent per SQM	Average Occupancy	Average Uptake	Average Annual Uptake	Average Rental Yield	Average Price Appreciation	Average Total Returns
Detached Units
High End	193,036	728	92.3%	94.7%	12.5%	4.4%	1.3%	5.7%
Upper Middle	147,178	594	85.2%	89.8%	13.0%	4.5%	1.1%	5.6%
Lower Middle	73,696	325	87.0%	90.6%	15.3%	5.0%	1.0%	6.0%
Detached Units Average	137,970	549	88.2%	91.7%	13.6%	4.7%	1.1%	5.8%
Apartments
Upper Mid-End	126,751	670	84.3%	89.9%	15.8%	5.4%	0.5%	5.9%
Lower Mid-End Suburbs	94,406	514	85.8%	88.0%	14.9%	5.4%	1.0%	6.4%
Lower Mid-End Satellite Towns	82,586	409	85.4%	86.3%	16.4%	5.5%	1.4%	6.8%
Apartments Average	101,248	531	85.2%	88.1%	15.7%	5.5%	1.0%	6.5%
Residential Market Average	119,609	540	86.7%	89.9%	14.7%	5.1%	1.1%	6.2%

Source: Cytonn Research

Detached units registered an average total return of 5.8% y/y, while apartments recorded an average total return of 6.5% y/y. Detached units in Ruiru, Juja, and Ngong recorded the highest average y/y returns at 7.8%, 6.9%, and 6.6%, respectively, while apartments in Ruaka, Waiyaki Way, and, Ruiru recorded the highest average y/y total returns of 7.5%, 7.4%, and, 7.4% respectively.

Cytonn Report: Detached Units Market performance, Top 3 Markets FY’2022/23 - FY'2021/22
Area	Average of Occupancy FY’2022/23	Average of Annual Uptake FY’2022/23	Average of Rental Yield FY’2022/23	Average of Price Appreciation FY’2022/23	Average of Total Returns FY’2022/23	Average of Rental Yield FY’2021/22	Average of Price Appreciation FY’2021/22	Average of Total Returns FY’2021/22
Area	Average of Occupancy FY’2022/23	Average of Annual Uptake FY’2022/23	Average of Rental Yield FY’2022/23	Average of Price Appreciation FY’2022/23	Average of Total Returns FY’2022/23	Average of Rental Yield FY’2021/22	Average of Price Appreciation FY’2021/22	Average of Total Returns FY’2021/22
Ruiru	87.3%	18.2%	6.2%	1.6%	7.8%	5.9%	1.9%	7.8%
Juja	81.4%	18.2%	5.7%	1.2%	6.9%	5.5%	1.2%	6.7%
Ngong	93.6%	12.4%	6.2%	0.4%	6.6%	6.5%	(0.2%)	6.3%

Cytonn Report: Apartments Market performance, Top 3 Markets FY’2022/23 - FY'2021/22
Area	Average of Occupancy FY’2022/23	Average of Annual Uptake FY’2022/23	Average of Rental Yield FY’2022/23	Average of Price Appreciation FY’2022/23	Average of Total Returns FY’2022/23	Average of Rental Yield FY’2021/22	Average of Price Appreciation FY’2021/22	Average of Total Returns FY’2021/22
Area	Average of Occupancy FY’2022/23	Average of Annual Uptake FY’2022/23	Average of Rental Yield FY’2022/23	Average of Price Appreciation FY’2022/23	Average of Total Returns FY’2022/23	Average of Rental Yield FY’2021/22	Average of Price Appreciation FY’2021/22	Average of Total Returns FY’2021/22
Ruaka	78.6%	22.3%	5.2%	2.3%	7.5%	5.2%	2.2%	7.4%
Waiyaki Way	83.8%	21.2%	6.3%	1.1%	7.4%	6.2%	1.1%	7.3%
Ruiru	87.0%	17.1%	5.8%	1.6%	7.4%	5.6%	1.4%	7.0%

Source: Cytonn Research

Recommendation and Outlook

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

Cytonn Report: Residential Demand Outlook
Metric	FY’2022/23 Experience and Outlook Going Forward	2022 Outlook	2023 Outlook
Demand	Kenya has relatively high urbanization and population growth rates averaging 3.7% and 1.9% compared to the global averages of 1.6% and 0.9%, respectively, according to the World Bank as of 2021. This will continue to provide sustained demand for more housing units in the country The Centre for Affordable Housing Finance Africa (CAHF) estimates that Kenya has an 80.0% annual housing deficit, as only about 50,000 new houses are delivered each year against a demand for 250,000 units per year hence the outstripping demand supply at an average of 200,000 houses supplied every year	Positive	Positive
Infrastructure	In 2023, the government is prioritizing the completion of previously stalled projects and avoiding the initiation of new expensive projects amid the current regime’s promised spending cuts. Consequently, we expect the sourcing of funding for infrastructure projects in the country to further shift to alternative financing strategies such as; Public-Private Partnerships (PPPs), issuing of infrastructure bonds, joint ventures, and grants and concessional loans from more foreign organizations, in order for the government to fast-track the infrastructural development that is critical in growing the Kenyan economy.	Positive	Neutral
Purchasing Power	The reduced purchasing power among buyers amid the tough economic environment brought about by inflationary pressures on the back of a weakened shilling against the dollar is expected to further hamper the purchasing power of buyers. This is as prices of essential items continue to soar, thereby leading to slow uptakes of residential units, consequently affecting the residential performance. However, we expect the growing middle class to pivot demand for residential units	Negative	Negative
Access to Credit	The provision of affordable mortgage loans through Kenya Mortgage Refinance Company (KMRC), is expected to gradually grow the local mortgage market and increase home ownership Currently, KMRC is the sole institution licensed to carry out Mortgage Liquidity Facility (MLF) activities in Kenya, which include the provision of long-term funds to Primary Mortgage Lenders (PMLs) such as banks, microfinance institutions, and SACCOs In 2022, KMRC refinanced 1,948 mortgage loans valued at Kshs 6.8 bn, which was a 278.0% increase from 574 home loans disbursed in 2021 valued at Kshs 1.3 bn. Despite the increase, the numbers remain low at 7.3% of the total number of mortgage loans, which stood at 26,723 accounts valued at Kshs 245.1 bn as of 2021. The graph below shows the number of mortgage loan accounts in Kenya	Negative	Neutral
Performance	The residential sector recorded an improvement in investor returns to 6.2% in FY’2022/23, from 5.8% in FY’2021/22, owing to increased selling prices and rents which came in at Kshs 119,609 and Kshs 540, respectively, from Kshs 118,652 and Kshs 535, respectively, recorded in FY’2021/22 We expect investors to focus on lower satellite towns that offer relatively affordable land and relatively high total returns for detached houses, which came in at 6.0% in FY’2022/23, 0.2% points higher than the detached market average of 5.8%. Apartments in satellite towns recorded an average return of 6.9%, 0.7% points higher than the apartments market average of 6.2%	Neutral	Neutral

Notes to the Editor:

Cytonn Investments is an independent investment management firm with offices in Nairobi - Kenya, and D.C. Metro - U.S. Cytonn is 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.

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 billion of real estate projects.

For more information, kindly contact:

Clifford M. Mulama

Brand Communications

254 (713) 840 107

cmulama@cytonn.com

Cytonn Investments Management Limited, Cytonn Square, Kilimani, Off Argwings Kodhek Rd,

P.O. Box 20695 – 00200, Nairobi, Kenya.

rdo@cytonn.com | +254 (743) 715 884 | +254 (701) 278 275