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Is investing in real estate in a recession a possibility? Recessions are no new thing in the country and the world at large. Recessions are characterized by high unemployment rates, falling stock prices, high-interest rates, and loss of consumer confidence. 

In 2007 when Kenya faced election violence, house prices took a steep, stock prices reduced, and there was high inflation in the country. The recession during that time took 10 years which in the short term, wasn’t a good time to invest in real estate.

Since then, the nation has encountered high economic times. According to statistics by United States Agency for International Development, Kenya has been one of the fastest growing economies in Africa from 2015-2018 with an annual average increase of 5.9% and a GDP of $95 Billion.

However, in 2019, the global pandemic hit our economy hard. The GDP fell from 6.3% in 2018 to 5.6% in 2019. Until then, we have been trying to rebuild our economy as all sectors of the economy were hit hard.

Even now when the pandemic has taken a dip, the country is yet faced again with a recession owing to the increase in the level of inflation in the country because of increased fuel prices.

Despite the numerous recessions that have taken place, the value of the real estate has increased in recent years. According to the Kenya National Bureau of Statistics, the real estate sector experienced a growth in 2019 of 5.3 from 4.1% in 2018.

So, why is this so? And what does that mean for you as a homeowner or a real estate investor? How can you benefit from it?

Let’s discuss whether it is a good idea to invest in real estate in Kenya in a recession.

Why buy property in a recession?

1. Housing is a basic need

Despite the nosedive in the economy, housing will always be a basic need. Therefore, there will always be a demand for property.

In a recession, we can resist buying a new car or a new phone, but no one can voluntarily decide to be homeless.

Most investors prefer investing in real estate during a recession as the housing prices have gone down and as the law of economics says, when prices go down, they can only go back up.

Therefore, they purchase the house during a recession and hold it to sell it later when the economy has stabilized.

For homeowners, you can consider renting out your house or apartment and get rental income. Rental income offers a safety net even during times of recession.

  2. Residential property is more stable

During a recession, investing in residential real estate offers a safety net and security.

Commercial properties have been considered more stable than residential properties. After all, some companies have been there for 20 years. However, the pandemic proved this theory wrong with most businesses closing as they are unable to pay for the rental space and with their employees working from home, the property lost its value.

Commercial property is subject to some market forces which do not necessarily affect the residential property. When businesses closed, individuals took advantage of the reduction of interest rates by the Central Bank of Kenya to take mortgages to buy property. This is because people need a home regardless of what is happening in the world.

3. Real estate investments have a propensity of being stable

During a recession, investing in property offers lucrative opportunities and stability to investors. Unlike stocks, residential property is not subjected to daily trading hence it’s less volatile.

In the recession we are experiencing as a nation, homeowners and investors were not only cautioned by residential rental income but also the security of having a roof over their heads enabled them to think of more lucrative ideas to stay afloat during such trying times.

What sectors in real estate are likely to do well during a recession

For most Kenyans who desire to live in luxury homes, finances still serve to be a problem.

The economic recession we experienced and are currently going through has seen a majority of middle-class earners looking for affordable housing in the outskirts of Nairobi in towns like Ngong and Kileleshwa. Therefore, developers and investors alike strive to purchase more houses in the developing towns resulting in an influx of people.

The low-middle income houses have sold more than high-end luxury houses as Kenyans look for affordable houses. Also, the affordable housing agenda by the government of Kenya has fostered the purchase of low-middle-income houses.

Bottom line

Despite the nosedive in the economy, housing will always be a basic need. Therefore, there will always be a demand for property.

During a recession, investing in residential real estate offers a safety net and security in comparison to commercial property as it’s not subject to some of the market forces.

It is, therefore, a good idea to invest in real estate in Kenya during a recession as it offers many lucrative opportunities.

As we know that recessions are bound to be in the future, the majority of houses in such times will be owned by real estate investors as they will continue building even when economic times go down,  because people have to have a roof over their heads. This will move the real estate model from a homeownership model to a rent-based model.

Additionally, as disposable income left by the buyers to invest in real estate will be low, start-ups will bank more on the government’s affordable housing plan and we’ll see more residential homes taking shape into commercial real estate resulting in an increase in mixed-used property.

If you’re looking for a stand-alone property for investment, check out the best real estate.

Most Kenyans living in the diaspora spend most of their finances on the purchase of land. However, the question begs how does one invest in real estate from the diaspora?

According to a survey done by the Central Bank of Kenya in 2021, the remittance from the diaspora amounted to USD 3,718 million with most Kenyans working in the diaspora investing most of their finances in purchasing land and repaying mortgages.

The journey of investments from the diaspora will continue to increase at an accelerated pace owing to intergenerational wealth transfer. Such transfers will eventually appreciate the value of their nation of origin as those from the diaspora often tend to invest back home.

Real estate investments while in the diaspora when done right, offers vast lucrative opportunities. However, with the offshoots of fraud individuals, the majority of Kenyans in the diaspora are skeptical about investing in real estate.

So, let’s look into how to invest in real estate from the diaspora.

1. Have an investment strategy.

Although the potential of property investment is limitless it’s prudent to have a strategy in place as a potential real estate investor. The real estate market has various variables and factors to consider that need attentive evaluation. Not conducting appropriate research is risky. Also, conducting research helps you in developing your strategy.

A plan prevents you from making poor judgments and ultimately financial loss. Some things to consider as you plan are:

• The type of property you desire to invest in. Are you planning on buying a townhouse, an apartment, or a commercial property?
• The location of the property. Look out for the best location to invest in.
• What is the purpose of your investment? Are you purchasing a house for rent or for you to live in? If it is for rent, you will need to consider hiring a real estate agent to manage it.
• What offers better ROI, buying off-plan or a completed house.

Above is a house for sale in Santack estate along Ngong road. The asking price is Kes. 12.5M. View the house for sale

 2. Real estate agent

Although you may feel sufficient after well-done research to conduct the investment on your own, it’s vital to get a real estate agent. Having an agent furnishes you with information you wouldn’t readily find on the internet such as costings, the market type, and the ideal target market should you desire to buy property for rent among others.

The right real estate agent would have researched the local market and is licensed by the Kenyan government.

Additionally, having a credible agent would offer you peace of mind and help ease the process.

3. Mortgage

The decision of investing in property either through your finances or mortgage lies solely on your investment plan. According to The Central Bank, on average, the mortgage amount given is Kes. 8.6M, the interest rate charged is 10.9%, and the repayment period is 11.2 years.

Some of the institutions that offer diaspora mortgages are The National Bank of Kenya, Housing Finance company of Kenya, and NCBA bank among others. 

If you desire to get a mortgage in diaspora, the requirements vary depending on the institution of choice. However, some of the requirements that cut across are:

• You must be a Kenyan citizen
• Must be gainfully employed in your resident country
• Have a KRA pin and produce a copy of your national ID
• Demonstrate the ability to repay

  4. Hiring a lawyer

Once you have identified the ideal property you desire to invest in, hiring a lawyer is the next step. Real estate investment has various processes some of which require legal attention. Hiring a lawyer serves you with advice on the legal requirements required and helps you with the process.

Hiring a lawyer also offers a sense of security in your purchase journey.

Conclusion

How to invest in real estate from the diaspora is easy if you know the steps to consider before embarking on the journey.

Remember, real estate investments have risk factors, so it’s important to do prior research and keep learning.

Also, before spending a shilling on the property, ensure you contact a licensed realtor to help you. Remember the location of the property is everything, therefore, investigate factors that make a place a prime location before investing in property within the locality.

As an investor, to avoid complications in the process, focus on a particular area of property investment and build an investment strategy. Ensure to keep consulting even as you do your research as it offers a safety net as you embark on the journey.

We know that the processes of investing in real estate from the diaspora may seem tedious as of now, however, in the future, there will be applications developed that allow one to invest in real estate with just a tap from the phone regardless of where you are. This is a similar way to Mpesa and how it made banking easy. Therefore, those in IT could bank on this opportunity by creating applications that make property acquisition easy by reduction of the processes involved. Happy investing!

The real estate sector remains a major player in the country’s economy. Over the years, its contribution to the overall GDP has grown exponentially. According to the Kenya Bureau of Statistics, it grew from 10.5% in 2000 to 12.5% in 2012, in 2016 it was at a whopping 13.8% and even with the recession, it has grown to 20% in 2021.

This growth has been contributed because of:

• Infrastructure developments such as utility connections, improved roads, and modernization of major airports.
• Stability in the GDP growth.
• Demographic trends such as the increase in urbanization of 4.4 per annum.

These variables have in this manner driven the emergence of some unique trends in the real estate industry. Let’s look at 7 new trends in the real estate sector.

1. Office space

In 2020, the demand for office space in Kenya went down by 68%. This came as the government tried to stem the spread of COVID-19 in the country by enacting curfews and lockdown measures. They also encouraged employers to allow their employees to work from home.

The disruptions in the supply chain and the economic recession increased the need for companies to reassess their working models. Businesses will continue to find ways to reduce their overhead costs by looking for affordable options and adapting work-from-home models. Therefore, the uptake of office space in brick-and-mortar setups will reduce.

Also, as the sector grows, it sees new trends as clientele change their preferences and international companies create a demand for something world-class. Serviced offices are slowly gaining popularity due to growing SMEs and as the dynamics of office space design and requirements continue to unfold. More and more developers are offering semi-serviced offices by providing facilities such as partitions and kitchen cabinets.

To reduce operating costs and provide a safe and healthy environment for workers, property developers are increasingly adopting green building technology, which has been shown to increase employee productivity.

Another trend in office space is the uptake of a smart office. It’s one designed to feel like home so that to meet the customer’s demand. A smart office is one equipped with amenities such as a cafeteria, gym, and entrances for people with disabilities. It’s driven by the force to produce an elegant and quality modern office.

2. Increase in the demand for residential houses

With a rapidly growing population and even more so a growing middle class, the housing sector has seen an increased demand nationwide.

There has also been an increase in the demand for affordable housing for the 61% of city dwellers who live in slums and an increase in student accommodation. As a result, we have seen more and more developers adopting low-cost housing construction methods such as alternative construction technologies, which are known to reduce construction costs by up to 50%.

In addition, with the demand for a live-work-play lifestyle, master-planned communities are proliferating, and areas like Machakos and Kiambu counties are becoming hotspots. Notable urban planned communities include Konza and Tatu City.

3. Increase in the demand for land

Even amidst a pandemic and challenging economic times, land proved to be a resilient asset. In 2020, there was a 2.3% annual capital appreciation.

The annual increase in urbanization of 4% and the increase in population which is above average at 1.1% make it a potential center of economic growth. A relatively young and investment-strong workforce will continue to drive the increasing demand for land.

With the progressive expansion of major highways such as the Nairobi Expressway and Waiyaki Way, demand for land in the country is expected to continue to increase.

Also, the rise of satellite towns such as Ngong and Kimuka attracts investors to purchase land as the land prices in the said towns keep appreciating.

Infrastructure development has meant property values ​​have risen, while a growing population has ensured continued demand. In a concept known as land speculation, investors are increasingly buying land to sell it later in hopes of it appreciating in the future.

In addition, to attract buyers, developers are using agribusiness to add value to plots for sale. This offers seasonal returns to their clients. Agribusiness includes agricultural activities, agricultural insurance, full farm management services, and a guaranteed sale of the products.

4. Change in the industrial real estate

Industrial real estate similar to commercial properties is undergoing a gradual transformation. A changing clientele that prefers high-quality inventory that enables modern distribution, retail, and manufacturing practices. This has resulted in modern industrial parks such as Tatu City which are built in such a way that they enable a living, working, and playing concept.

There is also a demand in the market for serine locations that are away from the congested CBD, and Mombasa Road areas. To fulfill the market demand, industrial parks are now moving to areas within Nairobi’s periphery, such as Machakos and Kiambu County, where they’re close to major railway terminus and airports.

5. Increase in the retail sector as a result of urbanization

With an increase in the middle-income class and more disposable income, both local and international developers are taking advantage of the ready market with the mall concept. This has made Kenya rank as having the second largest mall in Africa after South Africa.

The most remarkable of such developments are The Hub, Two Rivers Mall, and Garden City.

6. Real estate’s future is digital

As real estate companies revise their strategies to improve their digital customer experience, Kenyans are increasingly buying land through digital platforms. This is particularly attractive to Kenyans who live in the diaspora and are looking for opportunities to invest in land.

The land requisition process has also been made transparent with the Ministry of Lands providing a digital portal that allows landowners to conduct a land search, transfer ownership and obtain a title deed.

7. Apartments

Another trend emerging is the building of unique apartments that look like stand-alone houses within Nairobi. As the population increase, constructors will look for efficient ways to house the increasing population. In addition, the tenants will have developed an inclination to finer spaces of living owing to the development of commercial real estate.

As the city continues to fill up, we’ll also witness a trend of people moving away from the noisy city to more quiet places. Therefore, many undeveloped cities will begin developing as investors invest in residential real estate to meet the demand.

Conclusion

The real estate industry has made tremendous progress and advancement. Various stakeholders in the industry are making commensurate changes to match the market demand and remain relevant in the field.

It’s important to study the trends as they are ever-changing to ensure you remain on the cutting edge and make profits. Even with these advances, due process remains a key component of real estate transactions. Real estate companies in the industry need to ensure they offer value, quality, and affordability.

Here’s a real estate property in Nairobi that you can add agricultural value to it by utilizing its spacious backyard.