Nairobi Real Estate Bubble
This weekend's real estate article in the Nation newspaper is a confirmation that the property market in Nairobi and its environs is in a bubble. Going by the Magazine cover theory, media headlines are usually contra-indicators.
The said theory states that by the time an investment class is on every ones lips, chances are that you are in the last innings of the upward cycle. It is during this phase that fools rush in and their dumb money gets taken out.
We saw the same here in the U.S., where we had all manner of real estate TV shows, and everyone and their brothers became land lords overnight. It didn't help that magazines such as Newsweek and The Economist gave prominence to real estate news.
It is worth noting that the biggest argument against a Nairobi real estate crush is that there is a scarcity of housing and land in Kenya. What they seem to have forgotten is that the same mania characterized Safaricom's IPO which in turn marked the top of the Nairobi Stock Exchange.
We will find out soon.
12 comments:
The article said something about the global recession hurting the foreign 'property kings' and suggested many houses would be respossessed (foreclosed) providing cheap bargains for smart guys still saving and waiting for the bubble to burst.
While house prices have been inflated for long I do not expect them to fall that much.(my estimate is a price fall of 25% at most)Land is still expensive and the cost of construction has risen by about 20%in the last year only.
But for bargain hunters it is a good time for buying though it might not be a good time for borrowing (for those who would require a mortgage) as banks are becoming more stringent.
kenyanreality
Propaganda, A buyers market awaits you.
Anon, I expect Nairobi to be hit hardest just like Florida, Nevada and California, which are down 30% and counting. UK with its housing shortage is already 20% down.
nairobi has been a bubble, prices in nairobi are/were out of whith and alot of construction was driven by overseas home equity loans. Also the argument inputs and land was/is inflated does not make sense.as long as the middle class is not expanding proportionally
but all is not lost crisis creates opportunities in banking and real estate.
i think the saving grace for the banks will be adjustment of mortgage to longer periods and securitization (yes securitization)
i know thats a dirty word nowadays but it makes sense as long as risks are mitigated (10 -20% down)
Also i thought Nairobi was booming until i saw the construction site that is Addis
This article would have made sense to years ago - but in March 2009?
There is a bubble. In upmarket areas only which is probably impacting the rest in trickle-down effect. It'll last as long as cash-only buyers are there.
@ Maina T. - The prices for apartments in 'upmarket' (assumption kileleshwa & Kilimani) are already falling. Check www.estates.co.ke - prices range from 5.8m to 7m for 3BR apartments.
BTW are you well versed in mortgage analysis?? If you are please do a post on it.
@ Bankelele - I agree that the article in the nation is quite late. Are there adjustments being made by banks to increase loan periods as suggested by Anon. & any rise in interest rates yet? & do Bank emloyees still get the preferential rate of 5% for mortgages??
@ssembonge
Thanks for this post
kenyanreality
Finally, a blog that talks about real estate.This is the second article i have found useful.Thanks.Any way there can be articles on how to invest e.g. mortages/financing.That would help.
So what does it really mean for home owners and real estate agents? Should people sell or buy property now? All this feels to me like the NSE.
Why am I not surprised? In recent years building companies have even set up shop here in the US to sell and market properties in Nai (at exorbitant prices)
Screamer, everyone's situation is unique. If you paid cash there is little to worry about over the long term. The people who should be careful are those who borrowed.
Just like the USA... when the median house price exceeds the median income... there is a great probability for a fall in house prices!!!
Kenya faces inflation but incomes are 'stagnant' thus the ability to buy a house is dropping...
Post a Comment