Cashing in on plush ambassadorial homes

Nairobi; Kenya: Construction activity is hotting up in Nairobi’s posh neighbourhoods as savvy developers move in to take advantage of the rising demand for ambassadorial homes.

Targeted in the move are expatriates and diplomats, who continue to play a crucial role in the residential and commercial property market in the country.

Experts who spoke to Home and Away said that there has been an increase in the number of developers who specialise in high-end homes for ambassadors and diplomats as the segment is lucrative.

They noted that investing in ambassadorial properties depends largely on the cost of land for development or redevelopment.

“Say an old house in Runda sitting on an acre is bought for under Sh100 million, refurbished or renovated to ambassadorial standards and then changed to commercial user, it may fetch profit equal to or surpassing that of apartments in estates such as Kilimani, Kileleshwa and Lavington,” says Sam Manjau, Director of Abec Real Estate.

He says that the risk level of renovating or refurbishing a single dwelling in Runda or Gigiri and selling it in a single transaction is much lower than that of erecting 40 apartment units and dealing with 40 potential buyers, especially when profit margins between these two ventures are comparable.

Gigiri is the diplomatic hub of Nairobi, servicing different United Nations offices.

Muthaiga, on the other hand, continues to be house ambassadors and is still rated one of the most preferred neighbourhoods.

A recent tour of some of these posh estates revealed that some high-end developers are now acquiring developed properties and demolishing them to erect plush ambassadorial homes, which fetch at least Sh1 million per month in rent.

“In Old Muthaiga the asking price for an ambassadorial residence is Sh1 million in rent per month,” says Manjau.

Martin Dias, CEO of Financial and Property Consultants Limited, says that venturing into ambassadorial and diplomatic homes can be lucrative.

Limited clientele

However, he says this market is small as it is limited to a particular clientele.

For example, he says, a developer may be able to put up 40 apartment units on one acre and sell each apartment for at least Sh20 million, bringing the total to Sh800 million.

The developer can also choose to let out the 40 apartments at Sh150,000 a month, giving him a total of Sh6 million a month or Sh72 million a year.

“This obviously would earn more than letting out one house for Sh500,000 a month (Sh6 million a year) or selling the house for Sh350 million in Muthaiga,” he observes.

“From a residential perspective, rental and sale value in and around Runda is primarily driven by the diplomatic and expatriate community as they form the largest segment of tenants in these estates,” notes Manjau.

Expatriates on short-term contracts are driving the serviced apartments market, which are popular in Westlands, Kilimani, Kileleshwa, Lavington and Karen.

“A significant number of developments underway in these estates are serviced apartments aimed at the expatriate and diaspora communities,” he says.

Kenyans in the Diaspora also play a significant role in the local property market. Diaspora remittances currently stand at Sh10.5 billion.

Dias says it is only recently did Kenyans living abroad start investing in the stock market and the real estate sector as opposed to the traditional consumption of their remittances.

In areas like Nairobi’s Eastleigh, the property boom is entirely attributed to the Diaspora, according to Hussein Haji, chairman of the Eastleigh Community Association.

The Diaspora factor

He says a huge chunk of property developments in Eastleigh are backed by investors in the Diaspora.

He also says that the asking price for plots in Eastleigh, especially in Eastleigh Section Two, is high because it is the hub of the property business. A quarter acre plot goes for up to Sh1 billion.

The diplomatic and expatriate markets have not only sparked demand for residential homes but have also increased the need for commercial properties.

“From a commercial perspective, malls such as the Village Market, Westgate (although closed) and the upcoming Two Rivers are largely patronised by the diplomatic and expatriate community,” says Manjau.

Office space in Gigiri and its immediate environs is likely to be primarily occupied by these two communities, he observes.
Manjau further notes that the rents for office space are highest in Gigiri as embassies must adhere to supply constraints of Grade A (or Class A) type offices.

Lack of these types of offices has seen many residential homes within Runda and Gigiri renovated and turned into commercial space.

These markets have also influenced the architectural designs of houses and apartments in this area. Homes here are in gated communities.

House size here ranges from 3,500 to 6,000 square feet on half acre plots.

Security is a major feature in these designs. Additional features such as a bigger plot sizes and pools normally reflect the rank of a diplomat or expatriate.