Credit: Crowdstreet

The American real estate bubble has a cycle of approximately 10 years. The last time it exploded was 2008. I have friends living there whose wealth in real estate was wiped out completely. Robert Kiyosaki says that the cycle is about to repeat itself. But that is as far as the American Market goes.

Back home the quest is always on the lips of first time investors and pundits a.k.a devil’s advocates. They do not know that the smart investor makes money in any kind of market.

I would also like to say that the Kenyan real estate market is young and underfunded. Most of the homes sprouting around the city are funded using savings and business cash flows.  Therefore, the house to loan ratio is very low.  Kenya Bureau of Statistics says that there is only 30,000 mortgages in the whole republic.

So, what are the chances that we will experience a massive default in home loans? Your guess is as good as mine.

Well, the real drive that creates bubble in the first place is price growth that is not backed by economic fundamentals.  In other words it is like having a rise in aggregate demand fuelled by high cost of inputs, that reaches a peak and comes down in a free fall.

I would also say that some market segments in Kenya, especially Nairobi’s upper middle class – Kilimani, Kileleshwa, Lavington and similar estates have had their run in the last 15 years.  We are now witnessing stagnation as evidenced by rent freeze in those areas.

So therefore, the most important thing for a budding investor is to know that learning how the industry operates will be your single most important determinant of success or failure. Staying away from real estate is not an option.  Smart investors make their money whether markets are moving North, South, East or West.

The Writer Kilundo Mbithi, is a Registered Agent, Valuer and Investment Consultant