Is Kenya's property market overvalued?

The question of property prices in Kenya has been a hot potato for a while.

And the answer depends on who you ask, with valuers, real estate agents, auctioneers and other property merchants split.

Perhaps value is relative to interests, noting the glaring differences in how a buyer, bank, insurance evaluator and taxman look at the same house.

Institute of Surveyors of Kenya (ISK) Chairman Abraham Samoei believes the market is fine and working as it should, describing valuation as both art and science.

“The art bit comes from the experience and judgement of the valuer on the outcome of those scientific processes,” he told Real Estate.

“Scientific processes give you figures based on the data, so the viability and applicability of that data will determine how reliable a valuation will be.” 

Mr Samoei, a valuation and estate management professional, was responding to an article by Real Estate on overvaluation of Kenya’s property market that stoked emotions.

One auctioneer had argued that property was not selling because of an overvaluation problem, blaming rogue valuers.

“Property in Kenya is not really overvalued because valuation is an interpretation of the market, what people are willing to pay and what they are paying,” said Samoei, proprietor of valuation firm Ascendas.

He reckons there are buyers all the time.

Prices also depend on the location of the properties, their uniqueness and costs of bringing them into the market. Some areas are emerging markets with opportunity for capital growth, making them attractive.

“People would pay a premium anticipating future benefits,” said the valuer.

He added that there are many considerations priced into property value, the biggest being construction costs especially in a place such as Nairobi, East Africa’s business hub.

Real Estate expert Johnson Ndege says price depends on how one looks at it. He said most property prices are affected by other aspects such as cost of land, finance and materials.

He observes that land has not appreciated much in the last two years owing to economic stress and now the Covid-19 pandemic.

“Asking prices have remained constant and within the outer part of Nairobi towards the satellite towns it appreciated slightly,” Mr Ndege told Real Estate.

He noted that aside from expensive materials in the last few years, financing had also been a key challenge.

“If you look at the data on real estate-related debts, highest in percentage of non-performing loans, it tells you developers are finding it harder to access credit,” he said.

“And the way they access it, the risk profile is high so they are getting the credit at higher cost.”

Recent Central Bank of Kenya (CBK) data shows that defaults on loans advanced to the real estate sector rose by over Sh5 billion in the last quarter of 2020.

The sector recorded a 6.4 per cent increase in gross non-performing loans (NPLs) from September to December 2020 to Sh61.4 billion, up from Sh57.7 billion in quarter three of 2020, said the CBK Quarterly Report.

Ndege says that during such a depressed economic time, prices may not necessarily go down.

However, Kimani Thambo, chief executive of Mombasa-based real estate firm Himaya Heights Investment, says property prices are inflated and making it hard for real estate dealers to ink sales.

“The property prices in Kenya, especially in major towns, are highly overvalued. This doesn’t work well for the dealers in the real estate industry as it’s very hard to get clients with deep pockets,” he told Real Estate.

Thambo said this has locked out many people who want to own property.  

“It also creates a notion to the population that land is hard to own, thus many people think land is a reserve for the rich,” he added.

However, Samoei says offloading property is not easy and the lag in transaction time has a big effect on price. “That explains why some may believe property is overvalued,” he said.