Real estate in Kenya is class based. That is to say they are areas such as Muthaiga, maybe Karen, Runda, Kitsuru which are reserved for the upper class; NGOs; pirates; and other criminals and money launderers. These areas operate very tight demand and supply markets that keep prices not only from falling but rarely falling bar a catstrophe such as PEV. These are found in almost every large city. A bubble is rare here.
The settled middle class areas are Kileleshwa, Kilimani and many others. This market is aspirational, and in essence that is the issue. When you hear a 3bed apartment going for Ksh17m, ask yourself how many well paid Kenyans can afford a mortgage on that at around 14% interest rate. Answer, its Ksh200k per month assuming Ksh5m deposit on the apartment. This implies monthly income of Ksh500k before tax. Ho many Kenyans are on that kind of salary? Hence a bubble almost certainly exists in this market. The bigger worry is which banks are giving mortgages into this sector.
The lower middle class areas are increasingly get drawn into the squeeze with concomitantly higher rents...
to be continued...
4 comments:
I've always asked myself the same question-which Kenyan middle class is affording 200K mortgages. Then Even though you get 500K before tax, that's still like 67% if your net salo going to housing alone. Practical? Maybe those who say there is no middle class in Kenya are right.
Middle class bubble.
Neighbourhoods are changing - and the yuppies who were to move to Kileleshwa (and buy 17m apartments), are instead building up their own neighbourhoods - on Thika road, Mombasa road (where property values have also tripled)
PKW-The problem is that CBK and GoK will react late to this bubble and it'll hurt the economy.
Bankelele-it actually has now extended all the way along Kiambu Road to Kiambu itself. You can buy a plot for less than Ksh20m
Great read...I have been asking my self the very same question and wondering where and what this bubble will lead to. How does one take the opposite position and capitalize when thngs go south? I would imagine that a % of mortgages issued will likely default. How does one capitalize on that?
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