One thing the article failed to take into account is the informal sector.
WHAT Kenyan homebuyers want, at least according to Eddah Musyimi, a property-seller, is a picket fence, friendly neighbours and safe streets for their children to play in. She works at Bahati Ridge, a development near Thika, a town around 50km (30 miles) north-east of Nairobi. For 13m shillings (about $125,000), well-off Kenyans can buy a nice-looking semi-detached house with about a quarter of an acre of garden. The mock Tudor facades and herringbone paving hint at middle England, but in other ways the area would blend easily into Houston or Tampa. With most of its residents commuting to Nairobi along a new motorway, it is one of the Kenyan capital’s first exurbs.
Nairobi has long been a city of colonial villas for the wealthy and privileged, and teeming slums for almost everyone else. But a building boom is starting to change that. At the edges of the city, and in towns nearby, new suburbs are fast replacing coffee plantations. Towards the centre ageing bungalows give way to towering apartment blocks. Property prices have increased almost fourfold since the early 2000s, according to Hass Consult, a local agency. It certainly feels like a frenzy. Property brochures litter shopping malls; empty plots of land sport signs announcing that they are not for sale, to deter con artists who try to sell land they do not own. And yet behind it is a mystery: nobody is quite sure where the money is coming from.
One thing that is not fuelling the activity is a mortgage boom. According to estate agents, just 22,000 home loans exist in the whole of Kenya, and half of these are reckoned to be to bank employees at preferential rates. Loans at market prices are punishingly expensive, carrying interest rates around 15% or higher. Rents, by contrast, are cheap: mortgage repayments can be two to three times as dear. As a result, almost nobody gets a mortgage to buy a house to live in.
Instead, says Sakina Hassanali of Hass Consult, the vast majority of properties are being sold to investors, who pay in cash. They are not interested in rental yield, she says—they just want a relatively safe store of money in a country that has high inflation and an underwhelming stockmarket. Extended families will often club their savings together to buy a property as a sort of family trust fund. It helps that owning land is seen as a signifier of wealth in Kenya. “If you own land, in the worst-case scenario, you can still grow crops, it comes from that,” says one young Kenyan financier. He explains how, despite his misgivings, he was still persuaded by his family to invest in some property outside Nairobi.
The source of this glut of cash is unclear. Some comes from savings; some from emigrants who repatriate earnings from abroad. But there are hints of less salubrious sources. The spoils of corruption are rarely kept in foreign bank accounts these days. Instead, they are invested at home. And just as Russians are blamed for inflating house prices in London and New York, in Kenya some blame rich Somalis.
Many well-off Kenyans worry that a crash is coming. But since the bubble is not puffed up by borrowing, that seems unlikely. The commercial-property market may deflate a little, thinks Edward Burbidge, an investment banker based in Nairobi: shopping malls are being built in places where the population density is far too low to support them. The challenge for investors is to find tenants to fill all the new houses. They had better hope that Kenyans really do want to live the suburban dream, picket fence and all.