Good infrastructure a catalyst for growth of real estate sector

Whenever infrastructure is mentioned, many people associate this term with good roads. But infrastructure goes beyond just having good and reliable road networks.

It includes all basic structural facilities that are key to the smooth running of an area. Where there is good infrastructure, the environment becomes conducive for economic growth and an enhanced quality of life. A good transport network is just one example of infrastructure. Other examples include water supply and sanitation and even reliable power.

When it comes to real estate, good infrastructure offers a competitive advantage on the success of a particular project. While location matters, real estate is heavily affected by infrastructure developments such as transportation, telecommunications, energy and water supply.

Property prices tend to rise significantly between the implementation of a project to completion of the same project. Despite the rise in prices, many real estate investors are willing to pay a high value for a property on their consideration for basic facilities. It is evident that good infrastructure is a catalyst to the growth of the real estate sector. Here’s why.

With infrastructure development, rationalisation and shift of land use is a common occurrence. This has been seen in areas that were previously used for farming now opening up to allow for residential and commercial use to support the rapid urbanisation growth as new areas are now accessible for development.

New home buyers, especially those who want to buy luxurious houses are always on the lookout for developed infrastructure in proximity to their desired residential property. A developed neighbourhood assures the buyer of capital appreciation and escalation in rental rates which translates to higher returns. Consequently, it opens up areas that were otherwise unattractive not only for settlement but also for trade and commerce thereby uplifting the economic prospects.

Value for land tends to appreciate in areas where there is notable infrastructure development or in areas where there is an announcement for future plans for development. A good example is the appreciation of land around the Standard Gauge Railways which led to the mushrooming of urban and trading centres along the route.

Research has shown that land prices appreciate by as much as 12 times the original value after completion of major infrastructure projects in close proximity. Just like land skyrocketed after the completion of the Thika Superhighway, many people are already speculating the rise in prices of land and property along Mombasa road with the ongoing construction of the Nairobi Expressway that is projected to revolutionize transport across the capital city.  

Increased infrastructural developments across the country have also led to the creation of more opportunities for private sector investment and public-private partnerships (PPP) that seek to close funding gaps which in turn boosts the development of the real estate sector. PPP have enabled Kenya to deliver numerous development projects that have led to the growth of the economy.

Ideally, financing for national projects in Kenya comes from debt and this sets back economic development by diverting funds to debt servicing at the expense of economic development. These partnerships grant the government access to private capital to carry out various development projects that would otherwise have taken a long time to implement.

With the good infrastructure being concentrated around cities and towns, developers are now shifting to satellite towns to create new communities and estates to ease the pressure on the urban areas which are currently witnessing an upsurge in population growth.

Many developers are currently using infrastructure to create thematic areas of serviced plots in the context of gated communities especially in the outskirts of Nairobi, a concept that has gained popularity in recent times given that there is a category of end-users who prefer building homes in infrastructure-ready areas.

It is important to note that there is an effect of infrastructure development in the real estate sector and going forward, there is a need for more partnerships between developers and the government through PPP which will, in turn, spur the country's real estate activities and the sector as a whole.

-Ms Ondego, Project Manager and Real Estate Analyst at Superior Homes Kenya