Nairobi Metropolitan Area (NMA) Land Report 2020

12 July, 2020

In June 2019, we published the Cytonn H1’2019 Market Review which highlighted the land sector’s performance in the Nairobi Metropolitan Area. According to the report, the land sector recorded a 0.5% y/y decline in asking prices, 4.3% points lower than the 3.8% growth rate in 2017/18, attributed to an overall slowdown in real estate investment during the year. Despite the rest of the zones recording a decline in asking prices, unserviced land in satellite towns such as Ruiru and Limuru registered a 3.9% annual capital appreciation on average during the year, attributed to the relatively high demand for land in these areas fueled by the affordable housing initiative which has been a key focus sector by both the government and private sector players.

This week, we update that report with 2019/2020 research data, highlighting the land sector’s performance in the Nairobi Metropolitan Area based on annual capital appreciation, identify market trends and the investment opportunity. In this topical, we shall cover:

Introduction to the land sector in the Nairobi Metropolitan Area,
Performance summary in 2020 based on zones and locations,
Summary and the investment opportunity in the sector, and
Conclusion and outlook for the sector.

Introduction to the land Sector in the Nairobi Metropolitan Area

The land sector within the Nairobi Metropolitan Area recorded several activities in 2019/2020 despite an overall slowdown in real estate development activities, attributed to a tough economic environment, and an existing oversupply of space within the commercial sector and the high end residential market. During the period under review, transactions in the land sector were driven by;

Increased focus on the affordable housing initiative by both the government and private sector developers. This has generated increased real estate activities especially in satellite towns where land is available in bulk and at affordable prices thus increasing demand for development class real estate,
Development of infrastructure which has opened up new areas for development leading to increased demand for development land,
Positive demographics with a relatively high population growth rate and urbanization rate of 2.5% and 4.3% respectively, against a global average of 1.2% and 2.0%, and a rising middle class with increasing purchasing power creating sustained demand for development land, and,
Reduced supply of development land at affordable prices in areas close to the Nairobi CBD resulting in demand for the same in satellite towns.

Despite the above drivers, the sector was constrained by;

Inadequate infrastructure leading to the growth of informal settlements such as slums, making land less preferred by investors especially in the urban areas in the wake of high urbanisation,
Inaccessibility to loans mainly due to low-income levels that cannot service the loans, the high interest rates and deposit requirements which lock out many borrowers. This has continued to cripple real estate development as it has resulted in low demand for property including land, and,
Reduced real estate development activities in the wake of the COVID-19 pandemic which has resulted in the disruption of construction materials supply chains and constrained development funding as investors adopt a wait and see attitude given the uncertainties in the market.

Some of the factors likely to shape the sector include;

Digitization of the Lands Ministry- In May 2020, the Ministry Of Lands and Physical Planning issued a notice to the public inviting them for public participation on the regulatory impact statement for the proposed Land Transactions (Electronic) Regulations 2020. If approved, the regulations will guide land processes in the country. We expect this to boost the real estate sector through faster land transactions thus reducing delays experienced by developers during the pre-construction period,
Government Land Repossession- In a bid to streamline the land sector in Kenya, the government is in the process of reclaiming all unclaimed and grabbed land in areas such as Kariobangi and Ngong , which is set to increase security in the fraud-ridden sector, and
Implementation of Land Management Reforms- Earlier this year, The National Land Commission (NLC) and the Institution of Surveyors of Kenya (ISK) agreed to form a joint team that will spearhead land reforms especially in the areas of research, land management, women land rights, compulsory land acquisition and compensation among others.

Performance Summary in 2019/20 Based on Zones and Locations

For our analysis, we classified the various nodes based on the zoning regulations and locations as below;

High Rise Residential Areas: These are areas characterized by high rise residential developments mainly apartments and include: Kileleshwa, Dagoretti, Githurai, Embakasi, and Kasarani,
Low Rise Residential Areas: These are areas zoned for low rise residential developments, mainly villas, townhouses and maisonettes and include; Kitisuru, Runda, Ridgeways, Karen and Spring Valley,
Commercial Zones: These are areas characterized by commercial office buildings in Kilimani, Westlands, Riverside and Upperhill,
Satellite Towns: Land in the area was categorized into serviced (site and service schemes) and unserviced land.

In 2019/2020, the land sector recorded an 8-year CAGR of 13.5% and an annual capital appreciation of 1.5%, compared to the (0.3%) recorded in 2018/2019, attributed to increased demand for land mainly in the low rise residential areas and satellite towns. Asking land prices in low rise residential areas recorded a 3.8% capital appreciation y/y, attributed to the availability of development land in these areas. Additionally, people are attracted to these areas as they are sparsely populated, thus offering exclusivity and privacy. Unserviced land in satellite towns such as Ruaka also recorded a capital appreciation of 3.8% y/y, attributable to the growing demand for land in these areas fueled by the demand for housing by the growing working population as the areas act as Nairobi’s dormitory, coupled by the improving infrastructure.

The summary of the performance is as shown below;

Source: Cytonn Research

All values in Kshs unless stated otherwise

SUMMARY OF THE LAND PERFORMANCE ACROSS ALL REGIONS
Location	*Price in 2011	*Price in 2015	*Price in 2016	*Price in 2017	*Price 2018/19	*Price 2019/20	8- Year CAGR	2018/19 Capital Appreciation	2019/20 Capital Appreciation	∆ in capital appreciation
Satellite Towns - Unserviced Land	9m	17m	22m	23m	24m	25m	15.8%	3.9%	3.8%	(0.1%)
Nairobi Suburbs - Low Rise Residential Areas	36m	68m	79m	82m	81m	84m	11.3%	(0.9%)	3.8%	4.8%
Satellite Towns - Site and Service Schemes	8m	15m	18m	15m	15m	15m	15.1%	(0.5%)	0.5%	1.0%
Nairobi Suburbs - High rise Residential Areas	52m	92m	111m	117m	117m	116m	11.0%	(1.6%)	0.0%	1.5%
Nairobi Suburbs - Commercial Areas	145m	359m	422m	433m	421m	419m	14.5%	(2.2%)	(0.7%)	1.5%
Average							13.5%	(0.3%)	1.5%	1.8%
*Asking land prices Land in the NMA recorded an 8-year CAGR of 13.5% and an overall annualized capital appreciation of 1.5%, compared to the 0.3% price correction recorded in 2018/2019, attributed to increased demand for land mainly in the low rise residential areas and satellite towns

Source: Cytonn Research

Satellite Towns-Unserviced Land

Asking land prices for unserviced land in satellite towns such as Ruiru, Limuru and Utawala, recorded a capital appreciation of 3.8% y/y, a marginal decline of 0.1% points from the 3.9% recorded in 2018/19. The relatively high capital appreciation is supported by the high demand for development land fuelled by; i) affordability in comparison to Nairobi’s suburbs, and ii) improving infrastructures such as sewerage systems and roads in areas such as Ruaka and Ruiru.