Land in Nairobi more profitable than gold, stocks and property

Saturday February 07 2015

Land is most valuable in the Upper Hill area of Nairobi. PHOTO | FILE

Trading in land in Nairobi has overtaken gold, stocks and property as one of the most profitable forms of investment in the Kenya, according to a new report by HassConsult and Stanlib Investments.

The report also showed that the return on investment in land is more impressive than investing in livestock and oil. Kenneth Kaniu, chief investment officer of Stanlib, an asset management firm, said return on investment in Nairobi’s prime lands near the Central Business District and the suburbs is impressive.

“The return on investment in developing areas of the city is phenomenal, with the suburbs experiencing a more than five-fold increase in prices over the past seven years. This puts the city’s land prices into a bracket of investment that is in a league of its own. It is important for investment managers to understand the drivers of land pricing,” Mr. Kaniu said.

The report showed that advertised land prices have risen 535 per cent from 2007. The average price per acre was just over Ksh30 million ($330,000) in 2007, but is more than Ksh170 million ($1.8 million) today. 

“Commercial and high-density housing are driving the pricing, with the city’s most expensive land in Upper Hill at around Ksh470 million ($5.2 million) per acre, followed by Kilimani at around Ksh370 million ($4.1 million) an acre,” the report said.

Land is currently cheapest in Karen and Lang’ata, at around Ksh45 million ($500,000) an acre, followed by Runda, at around Ksh67 million ($740,000). The most expensive high-end low density residential land is in Spring Valley, at around Ksh150 million ($1.6 million) an acre.


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Urban land has delivered the highest return of all asset classes in the past seven years, followed by property, which up 98 per cent from 2007. Land prices in the past four years have risen at twice the rate of cattle, and four times the rate of property.
Zoning has been cited as one of the factors that have pushed the land prices up.

“Where an area is zoned for commercial use, or for high density residential, which typically means apartment blocks, the land itself becomes worth considerably more than land for low density and residential only development. The buildings that will be sold at the end will fetch far more for a commercial highrise than a single detached house,” Sakina Hassanali, the head of research at HassConsult, said.

“Land prices in exclusively low density residential areas are far lower than those for commercial and high density suburbs; Runda land prices average Ksh67 million ($740,000) an acre, whereas Westlands acreage costs an average Ksh360 million ($4 million) an acre,” Ms Haasanali said.

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Land prices have shown no signs of slowing down. This is now a concern to developers, who feel that the prices are now making the houses within Nairobi a rich man’s affair.

Charles Mwangi, a land valuer, said the high land prices within Nairobi and its environs have led to developers buying land more than 50 kilometres outside the city.

“The land demand in Nairobi is so high that even the satellite areas are overpriced. This explains the rise in the commuter estates on the outskirts of Nairobi as residential estates can no longer afford the land within the city,” Mr Mwangi said.

Pete Muraya, a partner at property developers Suraya Group, said the land pricing system within the country is flaccid and needs to be checked.

“What explains this increase? How do you price an acre of land at Ksh300 million ($3.3 million)? How will the person buying it recoup their returns?” he asked.

Mr Muraya said the government should bring down the cost of land through its subsidiaries such as the National Housing Corporation, to build houses on vacant land within the city and price them lower than what the private developers are doing.

“It’s only through this that the shift will change. We are now priced amongst the countries with the priciest properties, in
the leagues of the United Arab Emirates and Singapore, yet our infrastructure cannot compare with these countries and cities,” Mr Muraya said.

Commercial use

Most of Nairobi’s upmarket land purchases are for commercial purposes, with investors putting up hotel chains and office blocks to accommodate multinationals and world renowned hotel chains.

Investors have demonstrated confidence in Nairobi’s long-term prospects and have put up hotel chains and new properties.

Since 2011, Mukesh Ambani’s Delta group has led in building and selling various multibillion developments in the Westlands, Riverside and Upper Hill areas. In 2013, the company sold the Delta Centre in Upper Hill to the World Bank at a cost of Ksh2 billion ($22 million).

In 2013, Nairobi outperformed 15 other cities in Africa, Asia, Middle East and Europe, among them Dubai and Beijing, which are considered the best real estate investment destinations.

It not only in Nairobi where, the land prices have shot up. Uganda Central Bank, in June last year, said the financial systems in Uganda faced risks from a correction in house and land prices because of the increase due to speculation.

“Over the past two years, rising land and residential house inflation has increased the financial risks to banks. The Land Price Index for greater Kampala increased by 33.6 per cent between June 2013 and June 2014, while the Residential Property Price Index rose by 31 per cent in the same period,” the bank said in its annual report.