House prices in Nairobi’s high-end market fell by 5.4 percent in the year to September, according to the Knight Frank Prime Global Cities Index (PGCI) for the third quarter in 2019.
Values of prime residential real estate continues to drop as the market softens, albeit at a slower pace compared to the 6.7 percent in the year to June and 6.5 percent in the year to March. This, according to the index released on Tuesday, 3 December 2019, is due to buyers seeking opportunities in a market segment still influenced by oversupply and distressed properties.
The values have been declining at varied rates year-on-year successively since the third quarter in 2016. However, values are still more than 30 percent higher compared to the fourth quarter in 2010, validating prime residential properties as a good investment for capital gains.
Prevailing macro and micro-economic conditions coupled with an oversupply in the segment have resulted in a sustained price correction. Subsequently, buyers have control of the market.
“We haven’t reached the bottom of the cycle yet and we expect to see further reductions in the near-term until the macroeconomic and local situations improve. One of the major issues right now is illiquidity in the market,” said Anthony Havelock, Head of Agency at Knight Frank Kenya.
The rising number of distressed properties in Nairobi has also affected prime residential values significantly, with lenders intensifying efforts to recover non-performing loans through sales of collateral.
“Deals are happening but are few and far between, and at discounted rates. It will take time for the economy to rebound considering it’s also not immune to external shocks,” he said.
According to Knight Frank, the removal of the interest rate cap should see a return of liquidity to the market, which will in turn lead to a recovery in the medium term.
The PGCI is a valuation-based index tracking the movement in prime residential prices in local currency across 45 cities worldwide using data from the Knight Frank global research network.