Some recent reports in the media and complaints from land lords have led to questions about the current stability of the real estate market in Nairobi. Talks about a looming bubble in the city have threatened to frustrate the financial objectives of some real estate investors. Caution has set in and increasing cases of landlords with empty apartments for the want of tenants have been reported.
A while ago, I attended the East Africa Property Investment Summit where this question was raised and the answer may be a temporary affirmation to a troubled land lord. That “market fundamentals do not support that notion”, was the reply. That was said by someone with a good amount of experience in various markets around the world, someone who I suppose has been at the top of a bubble when it burst as well as experiencing the thrill of market upturns when profits flow like water from a pipe burst. Someone whose opinion you may want to trust. However, the disclaimer follows here; you never know what can happen because things change quickly.
There may be many genuine reasons to sound an alarm, just as there can be many reasons that this may turn out to be a false alarm. Could be anything ranging from minor market corrections, changes in location preferences by customers, inadequate market research by some developers, and particularly during these politically charged times, the market may experience strong sentimental headwinds. Buyers and tenants may be holding off from investing their money until after the elections. This is natural in times of uncertainty. Bubble or not, there is an old age advice for that could help investors hedge the risks in Nairobi’s reals estate business.
Diversification
Diversification has been used to good advantage in the stock market by investors who diversify their portfolios with stock holdings in different sectors of the economy. But am not talking about that strain of diversification. Instead, I am championing for diversification within the real estate sector itself. It is a good thing for investors that there is high demand for houses in Nairobi and so landlords demand high rents but investors know it is this kind of trend that leads to a bubble as every developer soon enough will want a piece of the pie.
Kenya however has much more to offer and there are other cities and towns where investors can get modest returns on investment. Towns like Mombasa, Kisumu, Nakuru, Eldoret, Kisii et cetera can also offer good returns on investment now that more financial and human resources have also been devolved to the counties. In place of developers flocking the city, much can be done to improve the value of real estate in those other towns by investing there as well. This doesn’t amount to running away from the lucrative opportunities that Nairobi has to offer but balancing your real estate portfolio by investing in the other major towns is the country.
There can always be local threats within the city due to social, economic and political factors as indeed there can be threats in those other towns. However, the contributing factors within different regions at different periods often vary, which means that headwinds in Nairobi may not spread to Kisumu or Mombasa or other towns across the country.
In that, way investors may offset the losses in one location with profits in another location hence hedging out the risks. This will also create more space for to investors play because such developments in underdeveloped towns are likely to attract more development which will accelerate economic growth. Investors have a variety of promising towns to choose from.
