The urban housing sector in Kenya is ironical: while it hold massive investment opportunities given the increasing housing deficit of more than 150,000 housing units per year, the requisite movement of the supply curve has been lacking, resulting in high-priced properties that are costly to buy or lease for many but a few. This has culminated in mushrooming of unsuitable dwelling units such as squatter settlements and shanties and irregular, incremental rental charges by landlords.
Rental markets in Kenya are distinctively different for urban and rural Kenya as huge number of people move into urban areas where major markets, industries, institutions and companies are located.
Current Rental-Market Trend
Availability of Rental properties
In rural Kenya, rental residential and commercial properties are easily available and affordable. 82% of people living here are homeowners.
Rental residential property attracts relatively low yields with one bedroom houses being leased as low as Ksh3500 – 5500
Rental commercial properties have better yields compared with residential
Urban Kenya is totally different, with people having to scramble for the few available rental commercial and residential properties.
Rental properties within the CBD are hard to come by and when you are fortunate enough to get a vacant space, you part with a significant amount of money to not only rent the property but also to counter other competitive bids made for the same space.
Offices situated outside the CBD and in the suburbs are generating high yields as industries and organizations are looking to not only cut rental expenses but also deal with parking difficulties and traffic congestion that feature prominently in the CBD.
The middle class are increasingly living in the outskirts of the city as they seek affordable and comfortable rental residential properties.
Due to lack of available and affordable spaces in the CBD, property owners within this area are reaping big benefits by dividing the available commercial spaces into sixty feet squared stalls leased at competitive rates by small-scale traders such as boutiques.
Lack of land that is well located in major towns such as Nairobi has pushed property development along major roads such as Mombasa road, where land for development is affordable and available.
There is a growing trend among Kenyan upper class that may be a cause for worry. In a bid to increase supply of housing units and to minimize costs associated with single-family residential properties, Kenyan upper class is moving downwards into modern and luxury but cheaper flats and apartments that have mushroomed within upscale neighborhoods. The downside is that prices for middle class housing have increased sharply beyond the means of people that are rightfully middle class.
Periodic tenancy is the main form of tenancy in Kenya, where tenants lease rental properties on a monthly and annual basis until either party terminates the tenancy by giving notice.
Tenants in Kenya can be categorized into the following types who pay a range of rent:
Low-income: often the urban poor who rent in squatter settlements and slums and pay as little as Ksh500 for single rooms
Lower-middle income: Ksh6,000 – 40,000 for 1BR houses
Upper-middle income: Ksh50, 000 – 250,000
Upper-income: lease in upscale neighborhoods and can spend from Ksh300, 000
Rental commercial properties record the highest yields in urban Kenya where the real-estate market is growing at 20% annually.
By 2011, luxury real-estate market in Kenya registered the greatest price rise worldwide
Properties in specific urban areas are registering 50% increase in rental prices
Kenyan elite are the most favored by the burgeoning property market since they are the only with the kind of money needed to buy the pricey properties, develop and rent them out and enjoy return on their investments
Rental yields in major towns such as Mombasa and Nairobi are approximately 6 – 7% annually with 3BR houses attracting rental yields of 5.72% annually