Why Nairobi is the continent’s second most expensive city

Friday, August 9th, 2019 00:00 |
Why Nairobi is the continent’s second most expensive city.

A screen shot shared on social media platforms in Nairobi last month indicated the asking price for Lihnari Island in Greece as $3.3 million (Sh344 million). The 95-acre resort has water, access road, 650 Olive trees and good sea views. The neighbourhood is full of luxury homes.

In comparison, the value of an acre in Lavington’s Mzima Springs, Nairobi,  was quoted at Sh390 million, according to Business Insider, a US-based financial and business news website.The striking difference lays bare the high cost of land in Nairobi, which stakeholders blame for the slump being experienced in the building sector in the city. 

Not suprisingly, Nairobi has acquired the dubious status of the Second Most Expensive city in Africa after South Africa’s Johannesburg. An Arcadis report titled 2019 International Construction Costs – Smart Decisions Crating Long Term Value – also ranked Nairobi 86th most expensive town globally. 

Arcadis is a leading global design and consultancy organisation for natural and built assets. It has ranked cities based on five factors including cost of living, cost of labour and cost of materials, quality and complexity of projects. The study also forecasts that Kenya’s growth in construction industry value will hit eight per cent this year, the fourth fastest increase in the world after Iceland, Qatar and Phillipines.   

“High land prices means investors have to sell property at higher cost. If the economy fails to perform, the resulting slump impacts on the property market,” says architect Mugure Njendu, President Architectural Association of Kenya (AAK).   

A4 Architects founder, Francis Gichuhi, says a half an acre in Stekene city, Belgium —a property surrounded by public amenities — costs about Sh5 million.  “Yet a property in the hinterland of Kiserian, Kajiado county, away from tarmac, without water, electricity or security, can cost Sh10 million,” he says. 

Speculative buying

Besides Europe where property is affordable, a 1.06 acre on a popular property advertisement website indicates a sale price of Sh10 million in California, US. It is located near Redwood City at Half Moon Bay, a heavily wooded area described by Wikipedia as ‘home for many horses and is among the wealthiest communities in the US’. 

A valuer and real estate consultant in Nairobi, Peter Kimeu, says sub-division is causing land prices to rise.  Land grabbing, speculative buying of land by the rich and fraudulent transactions in the Ministry of Lands— including trade in fake title deeds and double allocations— also make the city  expensive.

Demand for luxury homes by UN and expatriate staff also puts pressure on rents.  Bernard Itibi, CEO at Countywise Enterprises based in Westlands, proposes impostion of Idle Land Tax to improve the efficiency of land markets.

Architects say the high cost of land continues to impact negatively on construction of real estate developments.  “Lack of access to finance and over supply in certain real estate investment brackets such as commercial office and retail property, remain a challenge, putting a slowdown in growth in performance,” says Njendu.

Manyatta Capital Real Estate  Developers CEO  Francis Kihanya says  given  the high costs, a  decline  in the growth of the residential market in Nairobi is not a surprise. “It  has been coming for a long time,  based simply on the law of demand and supply. Over the  last 15 years, we have focused  on middle- and upper-class housing,” says Kihanya.

The developer says currently, there is less demand compared  to the supply of houses  in this segment. Unfortunately, developers keep putting up more houses for this bracket on the premise  that this rich group has money to invest. 

According to Mesora Githinji of Technovate Ventres, a Nairobi real estate agency, a lot of dirty money is finding its way into real estate, pushing up prices.  Dirty money is ill-gotten wealth from corruption and fraudulent activities. 

Multiple factors influence a city’s position in the International Construction Costs Index, states Patrick van Hoof, Global Director Digital Innovation at Arcadis. To begin with, some cities are more or less expensive than others.  

Cost of living 

This is what economists partly call the cost of living, which is the price of goods and services such as food, taxes, healthcare and housing. “The cost of living influences another important factor, namely the cost of labour in a city, which has a significant impact on the cost of construction,” says Van Hoof.

The overall productivity of the construction industry in a location also affects costs.  In parts of the world where productivity is higher, the relative costs of completing a project will be lower. 

The cost of construction materials is another crucial factor,  but globalisation means that prices are not just based on location, as more and more globally- sourced materials are locally available. 

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