Property developers hassconsult has launched the country’s first ever land price index covering urban land in the nine Nairobi suburbs with the most intensive development on-going. The company data indicates that the return on investment in developing areas of the city is very important as the suburbs experiencing a more than five-fold rise in prices in the last seven years.
“The index we are presenting to you today is based on all records of land offered for sale in these nine suburbs” says Ms. Sakina Hassanali, Head of Research & Marketing, HassConsult
She added that they chose the suburbs based on the scale of building and construction in each suburb. The nine suburbs where development has been the most intense over the period. In a speech Hassanali said the Company has collected more than 10,000 land records to understand the pricing trends in each of the nine suburb. She confirms that land is a key issue in supply and pricing.
Hassanali appreciates Hassconsult Land Index collaborated with Stanlib which she says it bring them investment expertise on the analysis of land against other classes of asset and commodities that allow more informed investment decisions making.
She Cpmplained in her remarks of roadblocks in mortgage finance that it is still priced at extraordinary levels by international standards. She added that the market has so far it can reach on price. She said against this backdrop loading of extra costs onto developers, as soaring land prices, new city fees, and sky high finance costs has served to show how resilient our nation’s developers are.
Hassanali commented that the growth is stronger for 1 to 3-bedroom apartments and is there was also price growth in the upper segment of 4 to 6-bedroom apartments with three-quarters of apartments currently being bought to let by the country’s emerging landlord class. With 62 per cent of semi-detached houses and 56 per cent of detached houses buy-to-let is driving the available apartments demand to a far higher degree than any other segment of the market.
Apartments are now dominating the new build market and enjoying the greatest demand. The fashion is still driving pricing at local levels. She added.
According to Mr. Kenneth Kaniu, Chief Investment Officer Stanlib, the move was putting the city’s land prices into a bracket of investment that is in a league of its own. Mr.Kaniu said that it was important for them as investment managers to understand profoundly the drivers of land pricing in order to make decisions that are key to returns.The index maps pricing, the spread of pricing, as well as the average price for an acre in each of the nine high development suburbs in Nairobi.
“ We therefore presenting to you today three averages: the average price for the cheapest 25per cent of land in each suburb; the average price for the most expensive 25 per cent, and the average price for land overall.” Said Mr.Kaniu
The cheapest land is often selling for around half the price of the most expensive land according to mr.Kaniu. He cited various reasons but singled out the most important factor as zoning. The areas zoned for commercial use and for high density residential which typically means apartment blocks, the land itself becomes worth considerably more than land for low density and residential only development. He added.
The buildings these pieces of land will be sold at the end and it will fetch far more for a commercial high rise than a single detached house. The impact on land values can make zoning a very sensitive issue according to mr.kaniu. He gave example where Runda estate land prices is averaging Kshs.67M an acre and the same size land in westlands costs kshs.360M an acre.
He listed other factors driving the differences in the prices of acreage within the same suburbs include accessibility, infrastructure vailability, and even general desirability, including even the surrounding properties and the view.
Mr.Kaniu cite lack market information – with some sellers selling for less than they could get and some buyers paying more than they would have to. He said that the Symptomatic of this might be the price spread in Karen, from a bottom quartile average of Sh20M an acre to a top quartile average of Sh94m an acre.
He also admits that it is true Karen does have areas of commercial land use.
In understanding the investment considerations in buying land, Mr.Kaniu has compared the growth in Nairobi’s land prices with other international investments, being gold, oil and cattle. The cattle data is based on international prices. Across all of these investments, The development land in Nairobi has grown in price far more than any other of the listed international investments.He also compared the land price movement across the rise in property prices and against other local asset classes such as equity and bonds.
The huge growth in land prices than in property prices brings experienced by developers having to expend far more on land while largely unable to recoup the increase in their end-sale prices. It also explains the shift to more than 90 percent of planning applications to high density apartments and commercial buildings where higher sales proceeds can cover the big jump in land costs.
The shift is a very important trend in understanding the meaning of this land price growth for the future. It flags very clearly that at such prices Nairobi’s land has reached the point where only the highest value buildings can still be built. The quantum rise of the last seven years is not the pointer to the same rise again in the next seven years. It is rather land prices are moving towards a maximum of what the construction and development market can bear. Explains mr.Kaniu