Anticipated drop in interest rates are following the placement of the government’s EuroBond – and the consequent easing of public demand for domestic debt will boost confidence for long term investments in Kenya’s real estate sector.
With domestic bond returns currently running at 9.18 per cent, and bond returns predicted to fall, improved rental yields are now gaining their lustre as an investment, spurring forward the buy-to-rent market.
According to Head of Research and Marketing at Hass Consult,Sakina Hassanali, “With the interest rate environment now expected to shift, the restoration of property rental yields back into the 7 per cent to 8 per cent range is once again attracting new investor interest as a long-term investment.
Over the last 12 months, prices for detached houses fell 2.2 per cent fall offset by a 6.7 per cent rise in semi-detached house prices and a 1.5 per cent increase in asking prices for apartments.
“Historically, semi-detached houses have recorded the best rental yields in the Kenyan property market, peaking at 9.69 per cent in December 2007, before falling – on swift house price rises – to bottom at 5.95 per cent in August 2011.
However, the marked surge in rental prices in the last two years, up a further 2.7 per cent in the second quarter, has delivered steady gains in rental yields.
Rents for semi-detached houses rose a further 3.2 per cent in the second quarter of 2014, taking rental yields to 7.77 percent.
The 3.2 per cent rise in apartment rents in Q2 saw rental yields for apartments recover to 7.47 per cent. For detached houses, which have traditionally enjoyed yields at least one percentile point lower than
semi-detached houses, rent rises in the second quarter of 2.4 per cent delivered a rental yield by the end of the quarter of 6.55 per cent.
“The correction in the relationship between rents and house prices was a necessary one, following the run-up in property prices from 2008 to 2011,” said Hassanali.