M a r k e t N e w s

Why real estate is the best performing asset class

Posted on : Thursday, 24th November 2016

 Some analysts have previously said there is a bubble in Kenyan real estate sector. But when will it burst? Business Beat spoke to Cytonn Investments Chief Investment Officer Elizabeth Nkukuu, who paints a different picture saying real estate is the best performing asset class delivering on average a return of 25 per cent.

Real Estate seems to be the primary investment solution Cytonn is offering, why?

Real estate has been one of the best performing asset class in the region over the last five years. It has outperformed other asset classes delivering on average a return of 25 per cent per annum.

There is a lot of innovation that can be done around real estate investments and that is why at Cytonn we saw the opportunity to do that and hence focusing on this.

Your researches have consistently pointed out that the need for housing is more pressing in the ‘low-to-middle’ income segment, how come there is very little focus on the low end?

There are a number of challenges that make it very difficult to get truly low cost houses. These include high land prices, high construction costs, high financing costs and lack of stable income in the low end to sustain a house payment plan.

 
Looking at areas with low land prices, there are mostly undeveloped with poor infrastructure and hence making it difficult for people to commute to work in the urban centres.
 
We have however seen the government take steps to encourage developers to focus in this area. At Cytonn we have allocated 85 per cent of our deal pipeline to low and middle income real estate developments and we are projecting that with the right partners we shall help reduce the gap.
 
There seems to be surplus supply of office spaces especially in areas like Kilimani and Westlands but how come prices aren’t going down? The supply has been rising, but in tandem with the demand evidenced by the high occupancy rates in these markets averaging between 82 per cent and 86 per cent for Westlands and Kilimani, respectively.
 
The economic growth rate has been high and there has been an increased focus of Kenya as a regional hub which has translated to more demand for offices.
 
This thus maintains the prices, as price is a function of demand and supply. In our view there is no oversupply in the market especially grade A and B offices yet. A big chunk of the investment in real estate seems to end up in cities like Nairobi, Mombasa and Kisumu, is there no potential in the rural areas?
 
There is potential for real estate development in all areas. It is just a matter of matching the right product to the right market. In most rural and semi-urban areas in Kenya we have seen a surge in the number of site and service schemes.
 
 Of key to note is that the rate of urbanisation in Kenya is also high at close to 5 per cent and this just means that there are more people in these cities and hence more demand for housing and other related real estate facilities.
 
Development in rural areas is however, mostly hindered by the fact that most land is ancestral/inherited thus owners are unwilling to sell to private developers.
 
You have quite a number of real estate development projects ongoing, when will we see the first/flagship project complete and ready for occupation? Yes, we have a couple of developments about 12 in number, which can take Capital of up to Sh73 billion at different stages of development.
 
The most advanced one is the Amara Ridge, our luxurious development in Karen will be complete in the first quarter of 2017. The Alma shall be complete in 2018. You have a Diaspora product encouraging Kenyans abroad to invest in real estate back at home, what is the uptake?
 
To date, our clientele represents Kenyans in the US, Canada, UK, Australia, Dubai, Qatar, Mali and Saudi Arabia. We continue to host events around the globe to reach out to the Kenyan Diaspora community and have hosted events in Dubai, Kigali, Johannesburg and the US this year.
 

Source : www.standardmedia.co.ke
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