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Real estate still the most attractive vehicle for investors

Real estate continues to deliver attractive returns for investors when other public markets are delivering average returns, a new report by Cytonn Real Estate has revealed.

Themed Pockets of Value in the Face of Declining Performance, The Nairobi Metropolitan Residential Report 2017 shows that development of rental houses continues to provide attractive returns because of Higher Rental Yields unlike homes for sale, which have stagnated this year.

“The continued price appreciation, though subdued, and higher rental yields indicate sustained demand for rental houses, but demand for homes for purchase eased,” says Cytonn head of Private Equity, Shiv Arora.

According to the report, the most attractive areas for development are Thindigua, Ridgeways, Lang’ata and Juja, which delivered total returns of 19.3, 18.4, 17.4 and 17.3 per Cent respectively. This is mainly as a result of proximity to high-end suburbs for Thindigua and Ridgeways, proximity to the CBD and other business nodes for Lang’ata and low supply of residential units and lower prices for Juja.

“The key drivers for the increments in house prices for the best performing zones prices have mainly been high demand in the areas, ease of access from the CBD and other business districts, and lower prices compared to houses in other similar nodes,” says Cytonn Investments Investment Officer, Elizabeth Nkukuu.

She said Juja and Runda Mumwe were the best areas to invest in Detached Units this year due to high uptake, returns and the availability of land. However, the main challenge with Juja is infrastructure, which may result in high costs for the developer.

For apartments, Ridgeways, Kilimani and Lang’ata were the best areas to invest due to high uptake, returns, and proximity to main business nodes in Nairobi. Apartments in Juja, Ngong’ and Rongai recorded stagnation in prices, indicating low demand compared to other satellite towns.

Apartments in the lower middle segment which mainly consist of satellite towns and Nairobi suburbs such as Donholm and Komarock recorded an average rental yield of 5.7 per cent, with an average price increment of slump 3.5 per cent. “On average, prices increased in these zones by 3.9 per cent, with Juja having the highest increment of 11 per cent attributable to high demand from middle classes as a result of lower prices,” said Nkukuu.

However, the report indicates that new government incentives such as reduced taxes and scrapping of various fees are likely to spur development. A slowdown being experienced because of the wait-and-see attitude adopted by investors —mainly due to political jitters —is expected to be sustained for the rest of the year, but the market to pick up in 2018.

“Prices in 2017 appreciated albeit at a lower rate of 3.8 per cent, which is 3.7 per cent lower than the same in 2016 due to a slow-down in demand attributed to investor anxiety over the 2017 elections. Rental yields remained stable at 5.6 per cent compared to 5.2 per cent yield in 2016 indicating sustained demand for rental housing,” said Nkukuu.

She said investors in detached units in the mid-end markets reaped the highest returns of 11.1 per cent on average, followed by apartments in upper mid-end (10.5 per cent), detached units in lower mid-end segment (9.5 per cent), lower mid-end units in suburbs (9.2 per cent) while returns for detached units in high-end markets are estimated at 7.5 per cent.


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Real estate still the most attractive vehicle for investors


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