Nairobi Metropolitan Area (NMA) Land Report 2021

25 July, 2021

In July 2020, we released the Nairobi Metropolitan Area Land Report 2020 which highlighted that in 2019/2020 the land sector recorded an annual capital appreciation of 1.5%, compared to the price correction of 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.

This week, we update our report by highlighting the various factors affecting the NMA land sector, market performance based on selling prices and the annual capital appreciation, as well as identify investment opportunities for the sector, using 2021 market research data. Therefore, in this topical we shall focus on;

Introduction to the Nairobi Metropolitan Area (NMA) Land Sector,
NMA Land Sector Performance 2021 Based on Various Locations,
Summary and Investment Opportunity in the Sector, and,
Conclusion and Outlook for the Sector.

Introduction to the Nairobi Metropolitan Area (NMA) Land Sector

The Nairobi Metropolitan Area (NMA) land sector registered improvement in activities in 2020/2021 despite the tough economic environment and an oversupply in select sectors of real estate such as the commercial office sector of 7.3mn SQFT. Some of the factors that supported the performance of the sector in 2020/2021 include;

Improving infrastructure with the government aggressively focusing on the implementation and conclusion of the various projects such as the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) project whose first berth was completed and launched in May 2021, Nairobi Expressway which is expected to be completed by February 2022 (six months ahead of its initial December 2022 completion date), and, the Western Bypass, among many other projects, which will in turn boost property prices and open up surrounding areas for real estate development,
The 0.6% and 33.6% improved budget allocation for the infrastructure, and, Housing, Urban Development and Public Works sectors in FY’ 2021/22 to Kshs 182.5 bn and Kshs 21.8 bn, respectively, from the Kshs 181.4 bn and Kshs 16.2 bn allocated in FY’2020/21, respectively. The improved allocations for the sectors is also expected to significantly increase development activities in the infrastructure and housing sectors which in return will source for improved demand for land and its overall upward performance,
The increasing focus on the affordable housing agenda by the government and other private developers hence creating demand for land especially in the satellite towns of NMA,
Relatively high population growth rates and urbanization rates of 2.3% and 4.0%, respectively in Kenya, against a global average of 1.1% and 1.9%, respectively, 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.

Contrary to the aforementioned supporting factors, the sector’s performance was still impeded by;

Reduced spending power by prospective clients attributed to the tough economic condition brought about by the pandemic hence crippling performance of the sector, in addition to the increased unemployment rate with approximately 0.9 mn people having lost their jobs in 2020, thereby bringing the unemployment rate in Kenya to 36.1% in Q3’2020 from 33.9% in Q3’2019, according to the Quarterly Labour Force Report-Q3’2020 by the Kenya National Bureau of Statistics (KNBS),
Reduced development activities in the real estate sector in the wake of the pandemic brought about by limited access to financing, and, oversupply in select sectors of real estate such as the commercial office and retail sectors of 7.3 mn SQFT and 3.1 mn SQFT in NMA, respectively, forcing developers halt their plans as they await the absorption of the current space,
Inadequate infrastructure despite government’s efforts to initiate and implement projects in the infrastructure sector, thereby hindering accessibility and investment opportunities in various parts within the NMA, and,
High mortgage lending interest rates currently averaging at 10.9%, and longer credit transaction timelines impeding access to loans, thereby also negatively affecting performance of the land sector due to limited purchasing and development power of prospective clients.

Despite the challenges affecting the sector, some of the factors that are likely to shape it going forward include;

Stamp Duty (Valuation of Immovable Property) Regulations 2020- In a bid to shorten and ease land transaction timelines and processes in Kenya, the National Treasury Secretary, Hon Ukur Yatani published the Stamp Duty (Valuation of Immovable Property) Regulations 2020, in October 2020. In addition to simplifying land transactions, the move also boosts confidence in undertaking land transactions in the country thus improving performance of the land sector through increased demand and uptake, as well as boost prices of various regions,
Digitization of Land Records- In a bid to curb fraud cases and ease land transaction processes, President Uhuru Kenyatta launched the National Land Information Management System (NLIMS) in April 2021, marking the culmination of years of digitization of land records in Kenya. The launch of the digital land platform named ‘Ardhi Sasa’, which was first rolled out in Nairobi then in other counties in phases, coincided with the opening of the National Geospatial Data Centre, an online depository that will contain all the land records in Kenya, and,
E-Construction Permit System- The system which also includes the QR code system was launched by City Hall in March 2020 to improve building plan approval performances, however was compromised in June 2021 forcing its operations to be withheld, and has since been under renovation with operations expected to resume in August 2021. With its revamp, it will further enable easier and faster building plan approvals which in return will boost land development activities through various construction activities which initiate improved demand for land.

NMA Land Sector Performance 2021 Based on Various Locations

For the analysis, we conducted research on various major towns within the NMA and classified them as follows;

High Rise Residential Areas: They comprise of areas such as Kileleshwa, Dagoretti, Githurai, Embakasi, and Kasarani, and are majorly characterized by the numerous high rise buildings such as the apartments found within,
Low Rise Residential Areas: These are areas which generally consist of low rise buildings such as the bungalows, maisonettes and villas. They include; Kitisuru, Runda, Ridgeways, Karen and Spring Valley,
Commercial Zones: They comprise of areas such as Kilimani, Westlands, Riverside and Upperhill, and are popular because of the numerous commercial office buildings that they have, and,
Satellite Towns: Land in the area was categorized into serviced (site and service schemes) and unserviced land.

The NMA land sector on overall recorded an average annual capital appreciation of 1.8% in 2020/2021, 0.3% points increase when compared to the 1.5% realized in 2019/2020, with asking prices averaging at Kshs 127.8 mn thereby realizing a 9-year CAGR of 12.2%. The improvement in performance was mainly attributed to the increased demand for land in low rise areas which recorded the highest annualized capital appreciation of 4.6% compared to a market average of 1.8%. However, land prices in the commercial areas of the NMA registered the highest price correction declining by 3.6% attributed to unaffordability with their current average prices coming in at Kshs 404.4 mn compared to a market average of Kshs 127.8 mn, coupled with the limited development activities in the real estate commercial office sector and an oversupply of 7.3mn SQFT as at 2020.

The summary of the performance is as shown below;

The table below shows a 9-year performance summary of the NMA land sector based on the average asking prices, CAGR and capital appreciation;

All Values in Kshs Unless Stated Otherwise

Summary of the Land Performance Across All regions in Nairobi Metropolitan Area
Location	*Price in 2011	*Price in 2015	*Price in 2016	*Price in 2017	*Price 2018/19	*Price 2019/20	*Price 2020/21	CAGR	2019/20 Capital Appreciation	2020/21 Capital Appreciation	∆ in capital appreciation
NMA Low Rise Residential Areas	35.6 mn	67.8 mn	78.4 mn	82.4 mn	81.0 mn	84.2 mn	87.9 mn	10.6%	3.8%	4.5%	0.6%
Satellite Towns-Unserviced land	4.2 mn	9.5 mn	12.8 mn	13.8 mn	14.2 mn	14.7 mn	15.2 mn	15.4%	3.6%	3.6%	0.0%
Satellite Towns-Serviced land	5.5 mn	12.7 mn	14.0 mn	15.0 mn	14.2 mn	15.0 mn	15.7 mn	13.3%	0.5%	3.5%	3.0%
NMA High Rise Residential Areas	52.6 mn	91.4 mn	109.2 mn	117.0 mn	116.6 mn	115.6 mn	115.8 mn	9.7%	0.0%	1.0%	0.6%
Commercial Areas- NMA	145.0 mn	359.3 mn	421.8 mn	433.0 mn	421.0 mn	419.0 mn	404.6 mn	12.3%	(0.7%)	(3.6%)	(3.0%)
Average	48.6 mn	108.1 mn	127.2 mn	132.2 mn	129.4 mn	129.7 mn	127.8 mn	12.2%	1.5%	1.8%	0.3%
· The NMA land sector on overall recorded an average annual capital appreciation of 1.8% in 2020/2021, a 0.3% points increase when compared to the 1.5% realized in 2019/2020 mainly attributed to the increased demand for land in low rise areas which recorded the highest price appreciation of 4.5% when compared to the market average capital appreciation of 1.8%

Source: Cytonn Research

Performance per node:

Nairobi Suburbs-Low Rise Residential Areas

The average asking prices and annual capital appreciation for land in the low rise areas came in at Kshs 87.9 mn and 4.5%, respectively, in 2020/2021. The performance was attributable to; i) serene environments hence attracting high end income earners, ii) sufficient amenities, iii) adequate infrastructure boosting investment opportunities and price boosts and, iv) their strategic locations in sparsely populated zones hence enhancing privacy. Kitisuru was the best performing node registering annual capital appreciation of 6.3%, a 3.3% points higher than the 3.0% recorded in 2019/2020, attributable to the increasing demand and accessibility of the area due to improving infrastructure.