Over the course of last year, we covered real estate performance across the various themes, including commercial office, residential, retail and hospitality. We saw that these sectors have over the last 5-years delivered high returns of over 25.0% p.a, driven by continued improvement of the Kenyan economic climate, improved infrastructure and the growth of the middle-class, leading to increased disposable income. This week we turn our focus to land, the capital asset on which real estate is developed.
We carried out research on the land sector performance in Nairobi Metropolitan Area over the last 5-years, between 2011 and 2016. The research was carried out in 18 suburbs and 11 satellite towns in the Nairobi Metropolitan Area as classified below. The findings and analysis are presented in the analysis below. We start by an introduction to the sector, the factors driving the performance, the performance of the sector according to zones and locations, and concluding by identifying the investment opportunity in the sector in terms of areas with the potential future highest capital appreciation.
The land sector performance over the years has been driven by (i) high population growth, which is at 2.6%, (ii) urbanization rate at 4.4%, compared to a global average of 2.1%, (iii) improved infrastructure through the development of roads and rail links, (iv) limited development land, (v) GDP growth rate of consistently above 5.0%, and (vi) legal reforms in the Land Ministry.
The performance of the land sector is as summarized below:
Based on the zoning regulations and location, we classified the sub markets as follows, and analyzed their price change over the last 5-years between 2011 and 2016:
- Commercial Zones: These are areas characterized with commercial buildings such as Nairobi CBD, Kilimani, Westlands, Upper Hill and Riverside;
- High Rise Residential Areas: These are the areas characterized with high rise residential developments mainly apartments such as Kileleshwa, Kilimani, Dagoretti, Ridgeways, Githurai, Embakasi, Kasarani and Kahawa;
- Low Rise Residential Areas: These are areas zoned for low rise residential developments, mainly villas, townhouses and Maisonettes. The areas considered under this category are Spring Valley, Kitisuru, Runda, Nyari, Karen and Old Muthaiga; and;
- Satellite Towns: The land in this area was categorized into serviced (Site and Service Schemes) and unserviced land.
Land prices indicated a positive growth rate across all areas in the Nairobi Metropolitan Area, with an average 5-year Compounded Annual Growth Rate CAGR of 19.4%, which equates to an absolute price increase of 2.5x over the same period. Commercial zones recorded the highest 5-years growth, with a CAGR of 24.3%, followed by site and service schemes at a 5-year CAGR of 20.4%, while low rise residential areas recorded the lowest 5-year CAGR at 14.6%. This price change is attributable to the value add and the convenience attributed to the amenities provided in site and service schemes, while the commercial zones are attracting investors due to relaxed zoning regulations allowing for densification hence maximizing on the land usage compared to low rise residential areas.
From our survey and analysis on the land performance, we have the following takeaways based on capital appreciation by various classifications:
- Commercial zones and site and service schemes have the highest 5-year CAGR of 24.3% and 20.4%, respectively, as shown below:
| All values in Kshs per acre unless stated otherwise | ||||
| Location | *Price in 2011 | *Price in 2015 | *Price in 2016 | 5 YR CAGR |
| Commercial Zones | ||||
| Kilimani | 114m | 294m | 360m | 25.8% |
| Riverside | 116m | 343m | 362m | 25.6% |
| Westlands | 150m | 300m | 453m | 24.7% |
| CBD | 200m | 450m | 600m | 24.6% |
| Upper Hill | 200m | 450m | 512m | 20.7% |
| Average |
|
|
| 24.3% |
| High Rise Residential Area | ||||
| Dagoretti | 28m | 81m | 95m | 28.0% |
| Ridgeways | 24m | 51m | 62m | 21.0% |
| Kilimani Residential | 114m | 238m | 280m | 19.6% |
| Githurai | 21m | 37m | 45m | 16.8% |
| Embakasi | 33m | 61m | 69m | 16.2% |
| Kileleshwa | 149m | 227m | 286m | 13.9% |
| Kasarani | 32m | 51m | 60m | 13.3% |
| Kahawa | 33m | 51m | 60m | 12.7% |
| Average |
|
|
| 17.7% |
| Low Rise Residential Area | ||||
| Spring Valley | 64m | 131m | 147m | 18.0% |
| Kitisuru | 32m | 59m | 70m | 16.9% |
| Runda | 33m | 58m | 67m | 15.0% |
| Nyari | 54m | 93m | 109m | 14.9% |
| Karen | 25m | 40m | 46m | 13.0% |
| Old Muthaiga | 125m | 164m | 197m | 9.6% |
| Average |
|
|
| 14.6% |
| Satellite Towns | ||||
| Ongata Rongai | 2m | 10m | 10m | 33.20% |
| Limuru | 4m | 11m | 13m | 25.00% |
| Juja | 3m | 7m | 9m | 22.40% |
| Ngong | 7m | 12m | 14m | 16.00% |
| Ruaka | 40m | 58m | 83m | 15.70% |
| Athi River | 2m | 3m | 4m | 13.90% |
| Utawala | 6m | 9m | 11m | 13.70% |
| Average |
|
|
| 20.0% |
| Site and service Schemes | ||||
| Athi River | 3m | 11m | 13m | 34.00% |
| Syokimau-Mlolongo | 3m | 12m | 12m | 30.00% |
| Ruiru | 7m | 15m | 19m | 23.90% |
| Ongata Rongai | 7m | 16m | 19m | 21.80% |
| Ngong | 11m | 18m | 19m | 12.70% |
| Thika | 5m | 7m | 8m | 10.50% |
| Ruai | 8m | 12m | 13m | 10.20% |
| Average |
|
|
| 20.4% |
| Nairobi metropolitan Area Average |
|
|
| 19.4% |
| *Asking price per acre · Land in Nairobi Metropolitan Area grew with an average 5-year CAGR of 19.4% between 2011 and 2016 · Serviced land in satellite towns recorded the highest capital appreciation with a 5 year CAGR of 20.4%, attributable to the value add associated to the services provided such as water, electricity roads among others | ||||
Source: Cytonn Research
- Ongata Rongai and Athi River recorded the highest 5-year CAGR above 30.0% due to the speculative environment experienced in the area between 2011 and 2016.
| Un-serviced Land Capital Appreciation | |
| 5-YR CAGR | Location |
| >30% | Ongata Rongai |
| 26 -30% | Dagoretti and Kilimani |
| 20 - 25% | Nairobi CBD, Westlands, Ridgeways, Limuru and Juja, Riverside |
| 16 -20% | Upper Hill, Embakasi, Githurai, Spring Valley, Kitisuru and Ngong, Kilimani Residential |
| 11 - 15% | Kasarani, Kileleshwa, Kahawa, Karen, Nyari, Runda, Ruaka, Utawala and Athi River |
| 6 - 10% | Old Muthaiga |
| Serviced Land Capital Appreciation | |
| 5-YR CAGR | Location |
| > 30% | Athi River |
| 26 - 30% | Syokimau Mlolongo |
| 21 - 25% | Ruiru and Ongata Rongai |
| 16 - 20% | N/A |
| 11 - 15% | Ngong |
| 6% - 10% | Thika and Ruai |
| · Ongata Rongai and Athi River recorded the highest capital appreciation due to the speculative environment experienced in the area between 2011 and 2016 driven by infrastructural development in the area | |
Source: Cytonn Research
- Areas likely to experience a CAGR above 25% in the next 5-years are Ruiru, Kikuyu, Kabete and Dagoretti among others due to planned infrastructure developments, as shown below;
| Infrastructural Developments | Areas to Benefit |
| Western Bypass | Kikuyu, Kabete, Tigoni, Wangige and Dagorreti |
| Outer Ring Road Upgrade | Kasarani, Donholm, Embakasi and Buruburu |
| Relaxed Zoning Regulations | Spring Valley, Kilimani, Parklands & Ngara |
| Trunk Sewer Lines | Ruiru |
| · The above areas are likely to experience a CAGR above 25% in the next 5-years due to planned infrastructure developments | |
Source: Cytonn Research
From our analysis, we expect increased investments and developments in satellite towns as investors and developers tap to earn the good returns of up to 20.4% CAGR.
| Land Sector Performance Conclusion and Outlook | |
| Measure | Sentiment |
| Factors affecting Land Price | · The key drivers for land sector are mainly population growth, urbanisation, improved infrastructure, land supply, economic growth with an average GDP growth rate of more than 5.0% over the last five years and legal reforms in the land administration · The key challenges such as corruption in the land ministry, high land costs, communal ownership of land hindering land transfer, difficult legal environment and physical challenges mainly in satellite towns |
| Land Sector Performance | · Land in Nairobi Metropolitan Area grew with an average 5-years CAGR of 19.4% between 2011 and 2016 · Serviced land in satellite towns recorded the highest capital appreciation with a 5-years CAGR of 20.4%, attributable to the value add associated to the services provided such as water, electricity roads among others |
| Land Price | · Land in Nairobi Metropolitan recorded an overall 5-years price change of 2.50x due to increased developments in real estate and improved trunk infrastructure · Site and Service schemes in satellite towns attracted the highest 5-years land price change at 2.67x |
| Outlook | · We expect increased investments and developments in satellite towns as investors and developers tap to earn the good returns of up to20.4%CAGR |
| Opportunity | · Investors should tap into the sector through, Land banking mainly in satellite towns to enjoy the capital appreciation at 20.0% and invest in site and service with capital appreciation20.4% · Areas likely to experience a CAGR above 25% in the next 5-years are Ruiru, Kikuyu, Kabete and Dagoretti among others due to planned infrastructure developments |
Source: Cytonn Research
In conclusion, land prices indicated a positive growth rate across all areas in the metropolitan, with an average 5-year CAGR of 19.4%, with commercial zones outperforming other areas. This growth is mainly due to improved infrastructure, relaxed zoning regulations and legal reforms in the land ministry. The opportunity is still largely in Nairobi satellite towns, which are experiencing heavy investment in infrastructure. However, there is likely to be a slowdown in transaction volumes being witnessed in the 3rd quarter of 2017, just at the run up to the election date, but with relatively stable pricing. Nairobi Metropolitan Area Land Report 2017.
-----------
Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only, and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.
