Real estate outlook across Kenya in 2019 hinges on the lifting of interest rate cap, and alternative finance models analysts say

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Property analysts have mixed views on the outlook for the real estate in Kenya this year across its segments with an overall neutral sentiment and only selected markets continuing to exhibit high returns.

Juster Kendi, a Research Analyst at Cytonn Real Estate, sees the residential sector and retail sector as neutral, mixed-use developments as positive with the commercial office sector being given a negative outlook.

“Our outlook for Real Estate is neutral, as the slowdown in demand for property persists amid increasing supply. We expect a positive performance in sectors like Mixed Use Development, Land and Hospitality, and negative performance in the Commercial Office sector and Listed Real Estate,” said Juster Kendi during the release of the 2019 Markets Outlook, which projected Kenya’s GDP growth for 2019 to come in between 5.7% to 5.9%.

Cytonn is favourable on prime locations in markets such as Nairobi and Kiambu Counties. This is because they offer the best real estate investment opportunity due to presence of a relatively adequate transport network and good water and sewerage coverage.

Investment opportunity within the Nairobi Metropolitan Area is in areas such as Limuru Road, Karen, Upperhill and Kilimani recording the highest rental yield returns of 9.7%, 9.4%, 8.7%, and 8.6%, respectively.

“In 2019, we expect the counties to remain attractive and real estate developers to align their projects with the ongoing infrastructural projects given the expected benefits including higher demand, price appreciation and savings on construction costs,” read part of the report.

Further, the firm’s outlook for listed real estate is negative as the performance is constrained by continued lack of investor appetite for the instrument and poor performance of the assets in its portfolio.

Cytonn says factors that will shape the  Real Estate sector performance will be on the government’s focus on affordable housing, increased mortgage uptake and adoption of sustainable developments and technology.

However, “We note that the Real Estate sector is mainly constrained by high financing cost for both developers and off-takers, and we expect the market to pick up should the interest rate cap be lifted, or should the government establish other financing methods such as tapping into capital markets and incentives for the mortgage market,” added Juster.

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