Investing in real estate in a recession

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.

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