Why Landlords Are Renting Out ‘For Sale’ Apartments

A good-looking five-storey building in Zimmerman estate in Nairobi stands by the side of Kamiti Road, adding colour to the bubbly neighbourhood.

The house built three years ago was initially for sale, with a two-bedroom unit going for Sh7 million. After finding it difficult to sell the units, the developer decided to rent them out.

This is the path that is currently being followed by many property developers in Nairobi and other major towns in Kenya, even as rents fall due to the increased supply of houses.

The move is aimed at helping developers to recoup some return on investments as they seek to meet their financial obligations.

However, even as they rent out their units, falling rents are presenting a new challenge to the cash-strapped developers.

Antony Kuyo, a Nairobi-based real estate consultant, acknowledged that many property developers in the Kenyan capital, who had initially planned to sell the houses they were constructing, are now renting them out.

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“We are managing a block of flats in Kitengela, which was initially meant for sale. Since we announced in November we are renting, we have leased out seven out of the 16 houses,” Mr Kuyo said, adding that the houses had stayed for over a year without people buying.

A recent survey from real estate firm HassConsult said rents fell by 2.3 per cent in the last quarter of 2015 because of an oversupply of houses, especially apartments, and high mortgages that ward off potential buyers.

“Rents for all properties fell by 0.1 per cent in the final quarter of 2015, with apartments recording the highest fall of 2.3 per cent. The sluggish upward rent movement was attributed to an apartment oversupply,” said the firm’s head of research and marketing Sakina Hassanali.

The drop in rent prices for apartments led to the fall in rental yields to 6.29 per cent as of December last year, compared to rental yields of 7.14 per cent recorded in the same period in 2014.

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