60% of Kenyan wealth is stored in real estate, with the value estimated at KSh 773 billion of which 10% is in the commercial real estate segment. The sector has always been a go-to option for diaspora investors seeking high yields and safe investment options, but it has also been impeded by a trust deficit.
Over the past several decades, Kenya’s real estate sector has grown significantly as an investment option, supported by infrastructure development, migration patterns, and vast investments.
For diaspora investors, this growth, coupled with the presence of institutional developers and regulated invested options such as REITs, makes the sector the go-to option while seeking investment opportunities in Kenya.
“In the last 20 years, Kenya has seen the most significant investment in infrastructure compared to all years since independence, that has led to opening up of not just Nairobi but surrounding counties and other counties,” Samuel Kariuki – Chief Executive Officer – Mi Vida Homes, says in a recent webinar hosted by The Kenyan Wall Street.
Devolution has also opened up new areas for real estate development in new and growing economic centres, in addition to continued growth in traditional property hotspot areas such as Nairobi, Mombasa and Kisumu.
“Previously areas that would have been considered rural are now solid urban or peri-urban areas leading to emerging residential and commercial properties all over the country,” he added. According to the developer, statistics indicate that Nairobi and its surrounding metropolis is growing by 400,000 annually, creating lasting real estate investment opportunities.
According to H2 industry reports for 2024, the prime residential market saw increased demand, with sale prices rising 8.27% year-on-year, up from 2.45% in 2023. Prime rental prices also grew 6.56% in H2 2024. Zoning changes in areas like Kilimani continued to transform Nairobi’s skyline, while the “build-to-sell” model gained traction, particularly in Westlands, Runda, and Kiambu Road.
The retail market also saw continued expansion despite economic challenges, with over 250,000 sq. ft. of new retail space completed in H2 2024. Notable projects included Mwanzi Market, Runda Mall, and The Cove in Lavington. Supermarkets adapted by opening smaller outlets in residential areas and petrol stations, rather than relying solely on malls. The period also saw a surge in luxury and upscale hotel openings, including Novotel Westlands, Hyatt House, and Okash Hotel Nairobi.
According to Mwenda Thuranira, CEO My Space, 60% of Kenyan wealth is stored in real estate, with the value estimated at KSh 773 billion of which 10% is in the commercial real estate segment.
“If you look at places like Kilimani, Kileleshwa in Nairobi, people are focused on building apartments forgetting to build the shopping centers. We are modernising the kiosks in these areas into mini malls to offer convenience to the residents,” he said.
Yields in Retail and Hospitality Sectors
Cytonn’s 2024 Real Estate Market Outlook for the Nairobi Metropolitan Area indicates that demand for housing is on the rise due to positive population demographics.
For the commercial Office Sector investment opportunity lies in Westlands, Gigiri, and Parklands, which continue to record high returns at 8.5%, 8.2%, and 8.0%, respectively, compared to the market average of 7.7%.
Investment opportunities in the retail sector lie in Westlands, Karen, and Kilimani with relatively higher returns of 9.9%, 10.2%, and 9.5% respectively, compared to the market average of 8.3%, attributed to the presence of high-quality retail spaces fetching high rents, coupled with the availability of quality infrastructure services.
Prime investment prospects in the hospitality sector lie in Westlands, Limuru Road, and Kilimani, where average rental yields stood at 10.2%, 8.2%, and 7.7%, respectively, surpassing the market average of 6.8% in 2023. This is due to their proximity to the CBD, the existence of top-tier serviced apartments commanding premium rates, convenient accessibility, and their closeness to international organizations, fostering a robust demand for serviced apartments in these areas.
Bridging the Trust Deficit
According to the Kenya Diaspora Alliance’s Global Chairperson Dr. Shem Ochuodho, the trust deficit still remains a big challenge holding back many Kenyans abroad from taking up opportunities in the real estate sector.
“We have heard of stories of people sending money back home to relatives for projects that have ended up not properly done, the only way I think this can be addressed is to develop products that are trusted,” he says.
“Due diligence should not just be limited to just checking the title deeds, work with professionals in the sector. If it is REITS work with partners who can give regular mobile updates on how your stocks are performing,” he advises adding “but even for Diaspora who choose to construct their own buildings, work with professionals together with technologies such as CCTV.”
He also disclosed that The Kenya Diaspora Alliance (KDA) is currently having a build consortium where it is running a couple of credible professional groups for instance lawyers, surveyors, civil engineers, architects etc, as a one stop shop acting as a bridge between major developers to give comfort.
MiVida Home’s Kariuki says this trust deficit could be addressed by well-structured institutions with qualified professionals to manage such real estate projects.
“If you are an investor in the diaspora looking to invest in real estate, due diligence is key, and I always say deal with institutional developers who can manage your projects at a small fee for better returns,” he says.
According to Carol Musyoka, Chief Provocateur CMCL, opportunities such as REITS offer investors in the diaspora safe avenues to invest in the real estate, allowing them income flow emanating from residential or commercial assets.
Kariuki adds that REITS provide opportunities to those who want more regulated but highly liquid instruments which expose them to the industry without necessarily taking some of the risks that are in developments and illiquid pieces of land.
REITs are regulated investment vehicles that enable collective investment in real estate, where investors pool their funds and invest in a trust with the intention of earning profits or income from real estate, as beneficiaries of the trust.
REITs source funds to build or acquire real estate assets which they sell or rent to generate income. The income generated is then distributed to the shareholders at the end of a financial year. They operate income-producing real estate or related assets which may include among others, office buildings, shopping malls, apartments, hotels, resorts, and warehouses.
Examples of REIT managers in Kenya are; MiVida Homes, Stanlib, UAP Investment, Nabo Capital and CIC Asset Management Limited are some of the REIT managers in the country. Currently, there is only one listed REIT i.e. the Stanlib Fahari i-REIT, which started trading in November 2015.
“Alternatively if you do not want to invest in REITs, I have seen an emerging trend where one can lease a number of residential units and convert to AirBnBs and you make the markup.”
“Anyone doing serviced apartments or AirBnBs is looking for between 15-21% yield on annualised return on their property. For real estate, that’s really high compared to your typical unfurnished unit or commercial rental yields of 8 per cent,” Kariuki notes.
He says that on financing, quite a number of banks including KCB, National Bank and Stanbic currently have financial products targeting the diaspora.
