Inflation breeds a rent crunch in Nairobi

Inflationary pressures are reshaping the landscape of Nairobi's real estate market, leading to changes in rent pricing and home buyer trends. A recent report by Hass Consult has shed light on the evolving dynamics of the housing sector in Nairobi and its satellite towns. Sakina Hassan Ali, the Head of Development Consultant and Research at Hass Consult, shared insights during an interview with CNBC Africa. The report indicates a market-wide drop of 1.2 percent in rent prices, signaling a general tightening of liquidity and a looming cost of living crisis for many residents. However, the data reveals varying trends within different areas of the city and its outskirts. Key Points: 1. Rental Price Corrections in Nairobi: The majority of housing units in Nairobi are apartments, leading to rental price corrections in densely populated areas with a surge in housing supply. This trend has resulted in a decline in rental prices in six out of eight suburbs, impacting rental yields in the market. 2. Surging Rental Prices in Satellite Towns: Conversely, satellite towns surrounding Nairobi have experienced a surge in rental prices, with eight out of nine towns recording annual rent increases. This shift is attributed to the affordability of housing in these areas amid inflationary pressures, leading individuals to seek more cost-effective options outside the city. 3. Changing Trends in Home Buyers' Behavior: Following the uncertainties brought by the COVID-19 pandemic, home buyers in Nairobi are increasingly prioritizing safety and quality in their investments. They are gravitating towards established developers with a proven track record, focusing on factors such as contractual transparency, construction quality, timely delivery, and rental returns. Quote: Sakina Hassan Ali highlighted, 'The reduction of funding towards housing in the low-income sector, coupled with economic uncertainty and a decrease in market liquidity, is likely to pose challenges for individuals in that segment, exacerbating the cost of living crisis.' The shift in investor behavior towards seeking safe havens, such as commercial hubs like Westlands and Upper Hill, indicates a move towards areas with robust economic activities. Additionally, the emphasis on infrastructure development and anticipated capital appreciation is driving attention towards properties in locations with improved connectivity. The discerning nature of modern buyers underscores a shift towards a more cautious and strategic approach to real estate investments. As the market dynamics continue to evolve, the prospect of institutional investors exploring opportunities in residential properties in satellite towns remains uncertain. While aesthetic appeal plays a role in attracting investors to these areas, the balance between returns and visual appeal will influence investment decisions moving forward. The proposed reduction in housing funds outlined in Kenya's latest finance bill poses a challenge to affordable housing initiatives, particularly for the low-income segment. With the economic landscape already strained by inflationary pressures, any decrease in support for housing projects could further burden vulnerable groups. The future of Nairobi's real estate market hinges on navigating these challenges, adapting to changing consumer preferences, and addressing the shifting economic conditions.