By George Gatonye.
The Kenyan real estate sector, once heralded for its high returns and sustained growth, is undergoing a significant transformation. Amid macroeconomic turbulence, property developers are increasingly listing houses in United States dollars rather than the domestic currency. While this trend may initially appear exclusionary to the average local buyer, financial experts argue it is a rational response to currency volatility and external funding structures.
Chris Muiga, a senior trader at the National Bank of Kenya and a respected voice in financial markets, has been closely tracking this shift. He asserts that pricing real estate in USD is not a speculative move. It is a financial safeguard rooted in the realities of a weakening Kenyan shilling, global supply chains, and the increasing reliance on dollar-denominated capital.
Currency Depreciation and Its Strategic Implications
To appreciate this shift, one must first understand the economic context driving it. The Kenyan shilling has been on a consistent downward trajectory against the US dollar, a trend exacerbated by both domestic and global factors. In just over three years, the currency has fallen from an exchange rate of approximately Kshs 100 to over Kshs 151 per US dollar. A 50% devaluation that has had wide-ranging implications across all dollar-exposed sectors of the economy.
According to Mr. Muiga, this devaluation affects real estate developers in two major areas: foreign currency-denominated debt and imported construction materials, both of which are central to financing and executing large-scale property developments.
Servicing Dollar-Denominated Loans: A Growing Burden
Many of Kenya’s prominent real estate developers finance their projects through international lenders, development finance institutions (DFIs), or private equity firms, with loans structured in US dollars. Mr. Muiga illustrates the financial burden created by currency depreciation using a hypothetical but common scenario:
“If a developer borrowed USD 100 million in March 2020, the equivalent value in Kenyan shillings at that time would have been roughly Kshs 10 billion. Today, that same loan is worth over Kshs 15 billion. The loan amount in dollars hasn’t changed but the cost to repay it in shillings has increased dramatically.”
This currency mismatch where revenue is generated in a depreciating local currency, but obligations are fixed in USD poses a significant risk. Developers are exposed to currency losses if they price and sell their units in shillings, only to find that the value of their earnings has eroded by the time loan repayments are due. By pricing properties in USD, they create a direct hedge against currency volatility and protect their ability to meet dollar-denominated liabilities.
The Cost of Construction: Import Dependency and Price Instability
Beyond financing, Mr. Muiga points to the industry’s heavy reliance on imported construction inputs. From steel and aluminum to electrical fittings and specialized machinery, many high-quality materials are sourced from global suppliers and invoiced in US dollars.
“Developers must recover the cost of building materials purchased at an exchange rate of Kshs 151 to the dollar,” Muiga explains. “If they sell houses in a currency that continues to depreciate, they may not cover the cost of construction, let alone turn a profit.”
In this context, pricing in USD is not just a hedge against debt risk. It is also essential for managing construction budgets and maintaining project viability. Particularly for developments with long timelines, the need for pricing predictability becomes even more pronounced.
The Structural Drivers behind the Shilling’s Depreciation
While external factors such as a strong US dollar and global interest rate hikes have played a role, Mr. Muiga emphasizes that internal structural challenges are at the heart of the shilling’s depreciation.
In recent remarks to the Finance and National Planning Committee of the National Assembly, Central Bank Governor Kamau Thugge confirmed that the supply of US dollars in Kenya has dwindled, while demand has remained elevated. This imbalance, driven by factors such as reduced export earnings, lower diaspora remittances, and increased demand for imported goods, has put sustained downward pressure on the local currency.
Mr. Muiga sums up the market sentiment succinctly:
“It looks like one-way traffic. Everyone wants dollars, and very few are bringing them in.”
This persistent pressure has led to a feedback loop in which businesses increasingly quote in dollars to protect themselves, thereby entrenching the dollar’s role in local transactions. Even in sectors traditionally priced in shillings.
Economic Trade-Offs: Accessibility vs. Financial Sustainability
While dollar pricing offers developers a buffer against macroeconomic uncertainty, it introduces new challenges, particularly around affordability and market inclusivity. A significant portion of Kenya’s housing demand is driven by middle-income earners who earn exclusively in shillings. For these potential buyers, dollar-denominated pricing can feel exclusionary or speculative.
However, Mr. Muiga argues that the shift is less about pricing out the local buyer and more about ensuring that developers can complete projects, repay loans, and stay operational.
“If a developer goes under because they cannot manage their financing costs, no houses get delivered regardless of how affordable they might have been,” he says.
