Kenya’s growing luxury housing market locks out middle class
Posted Saturday, January 5 2013 at 16:02
- As the upper class moves downwards, they still want to live in apartments that are comfortable and modern. This has pushed the price of middle-class housing beyond the reach of those who are rightfully middle class.
- Economic experts now warn these market trends are not healthy for the economy.
Kenya's upper class are increasingly falling on hard times and can no longer afford luxury homes, economists and real estate experts say, despite the development boom in upmarket homes.
According to the African Development Bank, by 2010 Africa’s middle class had risen to an estimated 34 per cent of the its population or nearly 350 million people — up from about 126 million or 27 per cent in 1980.
Kenya’s middle class was believed to include those people who could afford an average lifestyle and decent and spacious housing, and who were educated and could send their children to affordable private schools, says Macharia Mwangi, an economic consultant.
“That is no longer the case. Areas that had been mapped out for middle class residents are now being inhabited by the upper class, who can no longer maintain their costly lifestyles. However, on their way down, they still have the resources to afford a fairly above-average lifestyle,” says Mr Mwangi.
He adds: “As a result, Kenya’s middle class drive fuel guzzlers, take their children to international schools and are bosses in big companies. As the upper class moves downwards, they still want to live in apartments that are comfortable and modern. This has pushed the price of middle-class housing beyond the reach of those who are rightfully middle class.”
The Knight Frank’s 2011 Prime International Residential Index (PIRI), which monitors price changes across the world’s top-end property markets, shows that Kenya’s luxury real estate market is ahead of every other country globally in terms of growth and profit margins.
The value of Nairobi’s prime real estate grew by 25 per cent in 2011.
On the Kenyan coast property prices went up by 20 per cent, higher than other major cities in the world such as Miami, which had a growth of 19.1 per cent; London, which had a rate of 12.1 per cent; and Shanghai, which had negative growth of 3.4 per cent.
But according to the index, the average price per square metre of real estate in Nairobi is the lowest globally at $1,700. But foreign investors favour the Kenyan market due to the high profit margins, PIRI says.
Janet Mundia, a property owner in Kileleshwa, a smart, middle-class area in Nairobi says: “Luxury apartments are being built for the local market and … while they are modern and very comfortable, they are still not (of the same) standard of luxury homes.”
“For a two-bedroom luxury apartment you pay about $1,000 a month (Sh85,000). For a luxury home it is twice that or more … Luxury homes are also very spacious. Each house is built separate from the other and the finishings are done to perfection. They also come fully furnished.”
Prices of luxury homes here range from $400,000 to one million dollars and upwards. But locals are not solely snapping up these houses.
Only eight per cent of the country’s 41.6 million people could afford a mortgage, according to statistics by the World Bank and the Central Bank of Kenya (CBK).
“Financing remains an issue for the many Kenyans desiring luxury homes. The cost of borrowing keeps rising even as property prices continue to skyrocket. Of late, interest is rising even on non-performing loans,” Andrew Kariuki, an expert in fixed income and money markets at the Diamond Trust Bank, explains.