Land prices in Kenya are double those of South Africa, which is a more advanced economy according to the latest study published by the Centre for Affordable Housing Finance (CAHF) in its annual yearbook for 2019.
The study which analyzed the construction industry in major cities across African countries also found that construction mark-ups in Kenya are double those in South Africa which may be an indication of development efficiencies and developers hedging their margin against the risk of construction.
“Of the cities surveyed, Nairobi was the most expensive in which to build the 55sqm house in 2018, followed by Dar es Salaam, and Kampala. The 55sqm house was least expensive in South Africa,” says the study.
Construction cost for a 55sqm house also varies from a low of USD 16,635 in South Africa to a high of USD 28,085 in Kenya.
Taxes, which form a significant cost differential in construction was also higher in East African Countries (Kenya, Tanzania and Uganda) compared to Nigeria and South Africa which have the lowest tax rates on construction.
In Nairobi, construction costs makes the largest component of house prices followed by taxes (VAT & Sales). Most costs are usually passed on to buyers in the form of higher house prices and house rents.
The Boston Consulting Group (BCG) in a COVID-19 Consumer Sentiment Survey conducted in May, 2020 found that 8% of Kenyans want to spend less on rent.
According to CAHF, 53% of urban households in Kenya might afford the cheapest US$8,040 newly built house on the continent by a private developer, given current 2019 mortgage financing arrangements.