What you need to know about the ‘housing bubble’ in Kenya


I first wrote about it in 2012. I stated that the bubble is bursting. Wait—I qualified it—that it will not be on a large scale like most countries, that the Kenyan property market is too striated to for such a wide scale phenomenon.

Some called it price correction. Some called it a normal economic cycle. Some called me an alarmist *a term that Ive learnt to get used to later on. (Well until whatever I was saying happened then they called me a prophet). {My analysis pointed to a Trump win…on your face. My analysis pointed to a BREXIT pass—on your face. I said IR would be capped, on your face. My analysis points to Jubilee….. …..}

Back to the point.

I will explain the bursting bubble like this.

In the normal Kenya style, we go after the hottest thing in town–investment otherwise. Real Estate was the thing between 2004 and 2010. The target market was mainly the middle-middle and upper-middle neighborhoods. (Look, in the middle class category there is lower-middle, middle-middle and upper-middle sub classes). The idea was to convert any open space/old building you could spot into an apartment and sell. Flip is the word. A few made a killing. With a booming ‘middle class’ obsessed with home ownership, banks dishing out mortgage loans left right and centre as the market was awash with liquidity, a Somalian  population beaming of pirate money and South Sudanese population with oil and looted aid money, apartments in the upper middle income areas were hotcakes.

Add the booming drug trade and the money laundering and it is easy to see why properties at that time were flying off the shelves.

But then they blundered.

The first people/investors made money and moved out. The rest of the group joined in too late-en masse. With great marketing, they bought into an already slumping demand. Building after building was coming up with ‘For Sale’ signs everywhere. In my neighbourhood then—hurlingham—new blocks was a daily thing.

Property prices skyrocketed. Banks  dished out more money as mortgage loans. It went on like this until they priced themselves out of the market. What many did not realize right around then that forget the cheap talk of ‘you never go wrong with property, property prices always rise’ is that a simple rule of the thumb would have shown that what they were buying into was overpriced.

I will not bore you with figures.

It goes like this.

If you buy a building and rent it out and the amount of rent you earn cannot service your mortgage, you better run and you better run fast. That is a clear sign that you have bought an overpriced house.

You are in something called negative equity which is not a good business idea.

A second thing is that demand—renting or selling–in the middle income bracket can only be afforded by so many people. Those who could buy had bought. The rest was an oversupply. Dead stock.

Later on as pirate money started dripping, South Sudanese started going back, drug trade was being curtailed, investors had sensed, buyers were all too aware—it became quite evident the kind of a problem at hand.

‘For Sale’ signs started changing to ‘To Let’. And even then remained empty.

Sales dipped to almost zero.

None wanted to talk about it because ‘it would distort the market leading to millions in losses.’ Banks realized that what they were holding in their inventory as the value of properties was to an extent that can keep one awake at 3AM paper values. Questions started flying around as to‘how the valuation of such buildings were done’ which were promptly answered by ‘willing buyer-willing seller principle.’

A rough approximation points to banks holding 124.8billion paper money worth or (no) pieces of real estate. 102 are stuck in negative equity and countless number of investment groups have no clue what to do with the properties they bought hopping to make a killing.

Banks are not very willing to lend against the properties anymore.

Fast Forward to 2016/17.

The same development is catching up with those who bought land as far as Emali in the name of Athi River, Kenya-Tanzania border in the name of Kiserian and such far away flung places. No one is buying land in those areas anymore and the subdivided plots are bound to remain like that for a while.

Then there is the issue of THE MALLS. This is the next disaster.

So what happens going forward?

It is slowly happening—offers here and there at between 20%-40% discount on prices. No advertisement on the papers yet for fear of distorting the market but it is boiling under. I personally have a few deals if you can reach me on [email protected].

…..And that figure of demand for housing being at 150,000 a year is a guess work that has been peddled around for sometime now. The truth is none of the players know for a fact as no conclusive research has been done.

….And demand for housing is not infinite. Not with unemployment rates at 46%.

Our problem lies in average rate mortgage (ARM) system—which dictates that when interest rise, mortgage payments also rise in tandem as opposed to a Fixed Rate Mortgage (FRM) scheme. Our problem lies in a govt with no policy to seriously address the housing issue—being a basic need–by setting up an environment that will allow a body, to have cheap deposits exclusively for funding housing development. Our problem lies in our obsession with land. Our problem lies in the fact that those who are in positions to make policies to make housing affordable are the same people trading in real estate for profit.

About Morris Aron

Economics. Ph.D Candidate. Communications & Media Relations Consultant. Social Media Consultancy | University of Nairobi | I am an economist by training turned an ward winning ex-business/financial journalist with over 8 years experience(by virtue of the confusion of the 8-4-4 system). A consultant publicist--mainstream and social media(for the love and for the money). A Researcher (strictly for the money).

3 thoughts on “What you need to know about the ‘housing bubble’ in Kenya”

  1. nash says:

    Great write up. I don’t see who is buying and renting houses in the upper middle-class areas. Most of the investors are on hiatus and the Chinese developers are not building any more. Funding for projects is also at a standstill.

  2. In my own opinion, the bubble will never bust. What happens is the market stagnates for a few years. Then the cycle starts all over again.

  3. victor Akumu says:

    Having worked for a real estate firm, I do not want to call it a bubble but rather readjustment of the sector. Real estate companies only targeted the rich …today things have changed and the middle class people are now being targeted. additionally many real estate companies are giving their clients flexible repayment periods

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