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Kenyan apartment developers now rent out houses meant for sale

by Bedah Mengo NAIROBI (Xinhua) -- The four-storey flat in Kitengela, a suburb south of Nairobi, Kenya, stands imposingly, dwarfing all the other houses in its vicinity.

Atop the flat and on the sides are huge signboards announcing that the two and three-bedroom houses are up for rent, each going from 147 U.S. dollars.

About three months ago, the boards carried a different message for about a year.

They announced that the houses were up for sale, with the two bedroom units going for 47,058 dollars while the three-bedroom ones 53,921 dollars.

Having found it hard to sell the houses, the property developer, who has other units in Nairobi, decided to rent them out.

It is a path many house developers, especially those who have built apartments, in the East African nation’s capital are taking as the sector seemingly reaches a saturation point, with rents falling and houses constructed for sale failing to get buyers.

A faster rise in property prices, pushing them beyond the reach of most buyers, is now making many developers rent their houses, which they had initially planned to sell, as they seek to recoup return on their investment.

But even as they seek to rent out the houses, falling rent is adding insult to injury to the developers.

According to latest report from real estate firm HassConsult, annual house prices in 2015 rose by 12 percent with rents too surging in some Nairobi suburbs by an average of 9 percent.

A three-bedroom apartment in the capital is going for between 53,921 dollars and over 110,000 depending on the suburb. Prices are lowest in satellite suburbs.

Prices of bungalows and maisonettes have equally gone up over the years, averaging between 63,725 dollars and over 130,000. Many potential buyers are finding these prices steeper, with some developers particularly in satellite towns cutting them.

However, this has done little to lure buyers, pushing the developers to rent them out.

Of all the kind of houses, apartments are the worst affected.

"I must admit things are not really looking good in the property sector.

"The bubble people have been talking about seems to have burst because both selling prices and rent for apartments are falling," said Antony Kuyo, a real estate consultant with Avent Properties in Nairobi.

Kuyo acknowledged that many property developers in Nairobi, who had initially planned to sell houses they were constructing, are now renting them out.

"Currently we are managing a block of flat 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," said Kuyo, noting the houses had stayed for over a year without people buying.

Analysts blame the developments in the sector to oversupply of houses, especially apartments, and high mortgage rates that ward off potential buyers.

Commercial banks are offering mortgages at between 15 and 21 percent.

"Rents for all properties fell by 0.1 percent in the final quarter of 2015, with apartments recording the highest fall of 2.3 percent.

The sluggish upward rent movement in Nairobi’s suburbs over the year was attributed to an apartment oversupply leading to a rent price correction in the segment," said Sakina Hassanali, the Head of Research and Marketing at HassConsult.

She noted the drop in rent prices for apartments in particular has also led to the decline in rental yields to 6.29 percent as at December 2015, compared to rental yields of 7.14 percent recorded in the same period in 2014.

There are almost five times more apartments in the market than town houses and maisonettes combined, with the units taking up to 60 percent of houses in the sector.




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