Land is the surest investment, beating gold, livestock and oil

By: IMMACULATE WAIRIMU

Land remains the preferred investment in the country despite the high interest rates, inflation, and a volatile currency, which have reduced fortunes in other sectors.

Compared to returns on gold and cattle, land proved the better investment, yielding more than 12 times the return on gold and 10 times that on cattle over a seven-year period, according to Hass Consult’s latest Nairobi Expanded Land Index.

Crude oil also reregistered negative returns during the same period.

Investment in land also gained over annualised stocks and bond returns.

“Whilst the 91-day Treasury bill historically narrowed the gap in the annual return on investments between the property market and bonds, investment in land has shown no down cycle and remains the most stable investment option with the highest yields over the seven years,” Ms Sakina Hassanali, the company’s head of research and marketing, said.

The third quarter results showed that by September 2015, land in low- and middle-market areas in Nairobi’s satellite towns of Juja, Athi River, Kiserian, Kitengela, Mlolongo, Syokimau and Tigoni yielded returns of more than 6.27 times.

ATTRACTIVE RETURNS

“The attractive returns on land in these satellite towns has become a key driver of demand, which has now become the new revenue stream for thousands of investments groups, co-operatives societies, saccos, learning institutions and individual investors,” said Ms Hassanali.

On the other hand, the low- and middle-income markets have been hard hit by the surging interest rates, which have driven house prices up. Properties in low- and middle-income areas saw the largest shift, with a 3 per cent increase in the quarter, the highest in almost two years, compared with a 0.1 per cent shift in high-income areas.

The weakening Kenya shilling has seen the Central Bank of Kenya raise the Central Bank Rate (CBR) from 8.5 per cent to 11.5 per cent. Subsequently, the Kenya Banks’ Reference Rate (KBRR) was revised from 8.54 per cent to 9.87 per cent.

“The new lending rates took effect in the quarter, thus affecting the developers who still have to repay their loans. This, coupled with higher mortgage rates, has led to an increase in asking prices for property in the satellite towns,” explained Ms Hassanali.

Buyers in Athi River have been hit the hardest as house prices went up by 6.3 per cent. Kiambu and Limuru followed with increases of 4 per cent and 3 per cent respectively.

Home owners in Mlolongo and Kiserian have also been affected, with the prices of properties for sale going up by 2.4 and 2.1 per cent respectively.

High-value, low-density suburbs such as Ridgeways, Nyari and Muthaiga are witnessing a market correction in terms of pricing on land, Ms Hassanali said: “The high increases that were seen in the first half of the year have reduced significantly to align these suburbs with the Nairobi average.”

The inner suburbs also recorded a 5.66-fold growth in returns in seven years, during which land in Upperhill remained the most expensive, with an acre going for Sh507 million on average. Upper Hill recorded the highest return on investment in the last seven years, growing its land value 8.45 times, followed by Nyari with 6.46 times, and Kileleshwa with 6.39 times.

Spring Valley had the lowest return on investment, with its land value growing only 3.78 times in the seven years.

Compared to the surging prices in the low- and middle-income segment, Nairobi’s high-end housing, which mainly targets cash buyers, has seen marginal adjustment in asking prices in the third quarter, with a 0.1 per cent increase above the previous quarter’s, and 9.4 per cent above the previous year’s.

Price stabilisation has been most evident in Eastleigh, where, from a high of between 80 and 90 per cent in the annual growth recorded in 2009 and 2010, land prices fell by 1.3 per cent in the last year.

While land in Nairobi’s suburbs registered high levels of growth in the first half of the year, third quarter growth levels reduced to meet similar levels of increase in land in satellite towns.

For instance, Ruaka, with the highest prices, recorded a 0.1 per cent decline, while Mlolongo showed the highest land price reduction of 1.2 per cent, compared with declines of 1.4 and 1 per cent in Ridgeways and Lang’ata respectively.

Effectively, this means that overall increases in both the satellite towns and the Nairobi suburbs averaged 1.45 per cent for the quarter, the report notes.

“What we are seeing in the current economic environment is that investors are looking for safe asset vehicles and guaranteed returns.

Land over the past seven years has consistently outperformed all other asset classes, providing consistent yields to investors,” said Ms Hassanali.

SOURCE: DAILY NATION