Industry News
Nairobi Developers Shift Focus to Residential Houses
House prices in Nairobi are defying a weak global economy and high lending rates.
Besieged by the soaring prices of land in the city centre and the stagnating prices of commercial spaces, major commercial developers in Nairobi are shifting gears and seeking shelter in building residential houses.
According to Kenya National Bureau of Statistics, City Hall’s approved residential building plans rose from Sh66 billion in 2010 to Sh154 billion last year.
Conversely, approved commercial plans dropped eight per cent to Sh57 billion last year from Sh62 billion the previous year.
According to property dealers, developers are turning towards residential properties which have shorter payback periods and are cheaper to construct.
“Developers who build office buildings in Upper Hill, where an acre of land goes for about Sh170 million, would take at least 20 years to recoup their investments compared to between 10 to 15 years in residential areas,” says James Muthoga, a property dealer.
The cost of building one square metre of residential space is Sh40,000, compared to Sh60,000 per square metre of commercial space.
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“The cost of building one square metre of commercial space is very high making residential houses the choice for investors,” says Mr Daniel Ojijo, the chief executive of Mentor Group Holdings, a Nairobi-based property consulting firm.
The stagnating selling price of commercial space in Nairobi is also a major reason why developers are shying away from the commercial real estate sub-sector.
“The selling price of commercial space has stagnated at between Sh11,000 and Sh15,000 per square foot since 2008 due to increased supply of office space and shrinking rental returns,” said Peter Kimeu, the head of projects administration at Housing Finance.
On the other hand, the selling price of residential buildings has been on a steady rise for the past few years, thereby attracting more property investors keen to tap higher returns.
A recent wealth report revealed that in 2011 the market prices for luxury property in Nairobi rose by the highest margins globally (25 per cent), defying a weak global economy.
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