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July 22, 2019 / By Stephen Osomba
Opportunities in Urban Housing: A Case of Nairobi City

With 22% of Kenya´ population living in the cities and an urban population growth rate of 4.4% every year, it´s estimated that the current housing in the country stands at 2 million houses. Kenya requires approximately 200,000 new housing units every year to meet demand, yet only 50,000 homes are built leaving a deficit of 150,000 units. This then brings about a huge demand for housing in urban areas.

The Real estate market in Kenya has, on the other hand, grown over the past few years. Its contribution to the country´s GDP has grown, from 10.5% in 2000 to 12.6% in 2012 and 13.8% in 2016. This growth is as a result of factors such as:

  1. Having a high urbanization rate of 4.4% as compared to the world´s rate of 2.1%, that is 500,000 new city dwellers every year.
  2. Increased infrastructural developments e.g., the Standard Gauge Railway, Thika Super Highway etc., opening up otherwise hard to reach areas.
  3. An annual population growth rate at 2.6% and a stable GDP.

Nairobi County has experienced major real estate investments over the years. This is due to the demand that exists for urban housing. There exist opportunities in urban housing in the county, especially since the county hosts the country´s capital city. This has made it attractive to many investors. Opportunities in the county in urban housing include:

Affordable Housing
The government´s dedication to the implementation of its Big Four Agenda has shifted focus on the real estate market towards affordable housing.

According to the Ministry of Housing, 83% of the annual supply of 50,000 housing units built is for the high income and upper-middle-income segment. This leaves 17% for the lower middle and low-income population, 15% going to the lower-middle-income segment and 2% for the low-income population.

With these glaring facts, it is evident that there is a huge demand and need for affordable housing in the country. The government in its Big Four Agenda developed the Affordable Housing Programme. This programme indicates plans by the government such as:

  1. The provision of state-owned land for free or at a low cost to developers through a joint venture model.
  2. Developing or subsidizing bulk infrastructure for identified development sites.
  3. Coordinating and expediting statutory approvals from authorities and utility providers.
  4. Creating a housing fund with mandatory contributions which will allow Kenyans to save for housing and be used to provide off-take undertakings to developers.

All these make it easier for investors and developers to invest in affordable housing. The opportunity for investors was further made easier by the U.N´s contribution of Kshs 63.7 million through the United Nations Office for Projects (UNOP). This investment was for the development of at least 100,000 homes across the country.

"By reducing the investment risks of development activities, we are helping to bring about new partnerships between the private and public sectors. The knock-on effect means unlocking new opportunities and providing jobs for local communities, which all helps drive progress towards the SDGs," said Executive Director Grete Faremo while announcing the details of the project in New York.

Affordable housing is in high demand in the country. Development of affordable housing in Nairobi is a good undertaking for any investor. With 61% of urban dwellers living in slums, the opportunities in urban housing geared towards affordable housing is the way to go.

Student Accommodation
Apart from being a place to go to work, Nairobi is also where universities and colleges have established their campuses. There was a time when universities were able to provide quality accommodation to their students. As the population increased, demand for higher education also increased and so did student enrollment.

Although universities expanded their facilities, it did not match the high rise of student enrollment. Therefore the demand for student housing increased. Statistics show that 31 public universities in the country can only cater to 25% of their students.

Private developers have already started to meet this demand by building hostels near universities to house those looking for alternative accommodation. Universities and colleges are also taking advantage of the Public-Private Partnership model to solve this problem.

Under this model, a developer builds a hostel operates it for about 20 years to recoup his investment before handing it over to the university. In 2018 the National Treasury´s Public-Private Partnership held an investors conference in Nairobi to sell the idea of a Ksh 20 billion housing scheme, that the government intends to bankroll to deal with the severe shortage of student accommodation in public universities. The government was seeking potential investors to partner with to provide 30,000-bed spaces in three public universities struggling with a shortage of student accommodation.

In addition to partnership deals, other developers are seeing the shortage as an opportunity to set up affordable accommodation facilities for students who prefer not to live on campus. An example of this includes Helios; a private equity fund based in the U.K signed a Ksh 7.4 billion deal with Acorn Group, a property firm for the development of 3800 hostels in Nairobi. The first phase of hostels was to be built near Strathmore, USIU and Daystar.

For an investor looking to invest in Nairobi, providing student accommodation is another opportunity to invest in.

Serviced Apartments
According to VAAL Real Estate in a report entitled, `Investing in Nairobi´, they state that there is a rising trend towards the uptake of serviced apartments. This trend is attributed to the rise of global corporates willing to set up their bases in Nairobi. Regional and International investors are also doing the same.

Serviced apartments are attractive to them because they are suitable for hosting their employees as opposed to living in hotel rooms.

In their report, VAAL Real Estate says that the supply of serviced apartments has nearly doubled over the past five years. In 2013 there were nearly 2,320 units and in 2018, the number was 4,582 apartment units. They now estimate that the number could exceed the 5,000 units in 2019.

Another reason is that serviced apartments with home amenities such as kitchen offer a home away from home for the users since they can cook their food. Compared to four to five-star apartments, serviced apartments are also cheaper.

Westlands and Kilimani areas with occupancy rates at 37% and 28% respectively have experienced the highest occupancy rates with Upperhill having 6% occupancy rate.

Nairobi offers great opportunities for investors seeking to invest in real estate. Affordable housing, Student accommodation and serviced apartments are in demand in the county. Catering to this demand could earn high returns for the investor who takes advantage of these opportunities.

Check out our latest urban housing project, 108 Sapphire