Nyeri investors yearn for friendly property market

Once devolution was embedded in the 2010 Constitution, Nyeri County was ripe with expectations that real estate development would rise.

Considered a strategic region in Central region - having been the provincial  headquarters in the previous administrative structure - Nyeri was viewed by investors as having potential for high returns.

A Cytonn Investments report titled, Nyeri Real Estate Investment Opportunity, said the property market was driven by emerging housing demand, devolution, positive demographics and improved infrastructural development. 

But a walk around the county’s major towns such as Nyeri, Othaya, Karatina and Chaka reveals little has changed in terms of new commercial spaces despite the initial boom.

The central business districts of these towns are dotted with buildings that were built in the early 1970s and remain unchanged as their owners are reluctant to restructure or sell the property.

Ndegwa Mureithi, the vice chairman of the local Kenya National Chamber of Commerce and Industry branch, said one of the reasons the towns are slow to grow is that most of the buildings are family owned.

“These firms are run by patriarchs or matriarchs who are unwilling to make risky investment decisions without guaranteed returns, especially where land is concerned,” he said.

New tenants are also compelled to pay ‘goodwill’ for commercial space, which is often quite high. Goodwill is a specific non-refundable sum given to the landlord by a tenant before occupying rental space.

At times, the tenants are asked to deposit up to six months’ rent and a goodwill of up to Sh1 million.

“Goodwill is legal but in the case of Nyeri landlords, it has been misused. Often it has become a barrier to trade and should be discouraged because it increases the cost of starting a business in these towns,” said Mureithi.

However, this is a prerogative of property owners which leaves most businesses at the mercy of landlords.

When Rose Njogu was searching for space to set up a fruit stand, she came face to face with the prohibitive nature of the goodwill after one landlord asked her for Sh100,000 for a small stall.

“My business only needs one room and access to clean water. I would rather sell my fruits on the streets than pay that amount, I only had capital of Sh20,000,” she told Home and Away.

Informal agreement

Nyeri Lands, Housing and Physical Planning Executive Kwai Wanjaria said the county government could not interfere with the informal agreement of goodwill.

“The county can only intervene by creating a conducive business environment, which will render goodwill untenable. One example is through the Asian Quarters transport termini, which will have 600 business stalls by June this year,” he said.

The stalls will be rented out without any goodwill, with an additional 400 to be constructed in the second phase of the multi-billion-shilling project.

Another effort to make the property market attractive is the formulation of the County Physical Planning Act, which sets guidelines for any new buildings put up in any town within the county.

“No new buildings that are less than four storeys will be approved for construction within the CBD. Also, the property should have parking space, preferably in the basement of the structure,” said Mr Wanjaria.

Any new buildings taller than four storeys should have an elevator installed and the facilities should be accessible to persons with disability by providing ramps.

On the old buildings that remain a permanent fixture within Nyeri town, Wanjaria said the county government is planning to hold a consultative meeting with owners to persuade them to renovate them.

“We cannot make any demands that will hurt the investors or the economy of Nyeri. This is why consultations must take place to find ways to address the issues touching on modernising the town,” he said.

However, despite the slow growth, major companies continue to rent and build commercial space.

In 2014, Naivas opened its first branch in the heart of Nyeri town, sitting on 62,000 square feet in a new mall on the main street. In Karatina town, Magunas Supermarket took up the space previously occupied by Uchumi Supermarkets.

Other companies followed, including Safaricom, which opened its regional headquarters in Nyeri town. Rolling Mills, Transchem, Davis and Shirtliff, I&M Bank and Toyota Kenya also opened new branches in the town.

But a spot check on a number of buildings reveals that most floors remain vacant for months, unlike residential properties that continue to grow in the various estates.

Patrick Mwangi of Real and Shine Property Agents said his business has increased, but mostly on residential property.

“I have more clients seeking my services as more residential buildings come up in areas that were mostly rural shopping centres on the outskirts of the CBD,” he said.

Peri-urban settlements such as Kiamwaithi, Kangemi, Kamakwa, King’ong’o and Ngangarithi in Nyeri Town, have at least four apartment buildings coming up every year.

The Cytonn report also noted that one-bedroom apartments have on average a rental yield of 3.1 per cent at an occupancy rate of 90 per cent.

The low yields in comparison to Nairobi’s average of six per cent is due to the low rents that the market is willing to pay.

This, Mureithi said, was because of changing demographics of the tenants.

“The number of university and college students has increased; for instance, Dedan Kimathi University now has an estimated population of over 7,400. These students cannot all be accommodated in the hostels so they seek low-income housing,” he said.