According to the Nairobi Metropolitan report released today by Cytonn investments, land prices in the Nairobi metropolitan area recorded an average annual capital appreciation of 3.7% in 2017, a drop compared to the 6-year compounded annual growth rate (CAGR) of 17%.

This was attributed to among other things; a tough operating environment due to high levels of political uncertainty, a credit crunch ensuing from the rates cap law, and a slowdown in developer activity stifling demand for land.

High-rise residential areas recorded the highest annual capital appreciation in 2017 of 4.8%. These are areas where zoning allows for densification which together with the growing demand for lower and middle-income housing, drove the rates up.

The locations under this category include Kahawa, Kileleshwa, Kasarani, Dagoretti, Githurai and Embakasi. Kahawa had the highest capital appreciation for the year at 8.3 per cent driven by demand for student housing while Embakasi had the lowest at 1.7 per cent. According to the report, the average asking price per acre for these locations was Sh. 108 milllion with Kileleshwa being the highest at Sh. 306m while in Githurai it was Sh. 46m.

Low-rise residential on the other hand recorded a capital appreciation of 4.5 per cent on average, 0.3 percentage points lower than high-rise residential areas. Of these, Karen recorded the highest capital appreciation of 12.9 percent from Sh. 46m per acre in 2016 to Sh. 52m per acre in 2017. Prices in Nyari reduced by 0.1 percent, recording the most dismal performance among the low-rise areas. However, this was barely significant as price per acre remained the same for both periods, at Sh. 109m.

Commercial zones like Westlands and Kilimani on the other hand, had a capital appreciation of just 3.4 per cent year on year compared to the six-year CAGR of 20.4%- a significant drop. The slowdown was occasioned by increased commercial development activity in those areas, resulting in an oversupply of office space. In 2017, the oversupply in office space was estimated at 4.7 million square feet.

Overall Kilimani had the highest capital appreciation of 7.5 per cent placing the land values at Sh. 387m per acre while Upperhill and Riverside both had reductions of 0.5 per cent. Also, the CBD still has the highest land prices at Sh. 634m per acre.

Site and service schemes in Satellite towns recorded the lowest appreciation at 2.7 per cent against an average 3.7 per cent for the market and a 3.0 per cent annual appreciation for unserviced land in the same localities. The implication is that buyers prefer to pay for unserviced land which is 36% cheaper and provide the services for themselves rather than paying a premium for the services.

Generally there was a decline in speculative activity in the land markets in 2017, particularly in satellite towns where speculation is often widespread, with investors adopting a wait and see attitude during the prolonged electioneering period. Places like Ruiru, Juja, Thika and Athi River have in previous years seen capital appreciation as a result of speculative tendencies.