A Property Bubble That Never Burst

For quite a while now I’ve heard that there is a housing bubble in Kenya’s urban areas, particularly in Nairobi, that is likely to burst. This has not come to pass (yet). Talking to a friend, whom I consider quite an expert in this field, it emerged that there are at least three arguments behind the Nairobi property burst:

Argument 1: the bubble is already over stretched and likely to burst in the course of this year, probably in the second quarter of 2010 (same was said for 2009)

Argument 2: there exist different bubbles across Nairobi. While the bubble in Westlands may have burst, other areas may still be at different stages of bubble development or none at all.

Argument 3: the bubble may not burst at all as demand for property in Kenya will always surpass supply, at least in the foreseeable future.

Unfortunately, there is no centralized data on property prices movements in Kenya that can be used to support any of these three arguments. Some major real estate agencies, such as Hass Consult and CitiVillas Valuers, have developed their own biased property price index, which are not universally acceptable.

A basic look at the price changes indicate that back in 2004 half an acre in a suburb area such as Rongai, Kitengela, Athi River or Syokimau would cost about Ksh.550k, two years later the same went up three folds to about Ksh.1.5m and right now Ksh.3m won’t get the best location. Up market areas such has upper hill and Westlands, property use has moved from residential to commercial purposes as more and more businesses/MNL’s move there. Half an acre there would cost anything from Ksh.25m upwards.

The cost of construction would vary with the type of building. However, a normal family house which would have cost anything from Ksh.3 - 4.5 million in 2006, would now cost anything from Ksh.5.5 – 10 million.

Taking into account that over the years the cost of land and construction has gone up considerably, coupled with inflation, some factors that may have continued to feed Nairobi’s property boom include:

• Somalia’s high sea piracy ransom money finding its way into the country. Kenya allows foreigners to buy land for commercial purposes and this has contributed largely to a small Mogadishu in Eastleigh, with near 24 hours malls replacing residential plots.
• continued increase in demand for land that has seen land prices going up despite a slow down in the general economy
• Increased demand for mortgage houses rather than rental houses by an expanding middle class
• Lack of information on property prices. Most property/mortgage buyers make uninformed decisions and end up unknowingly paying exorbitant prices.
• Unflustered foreign currency remittances from the populous Kenyan diaspora despite the recent recession in the west.
  

Only in Africa (& Kenya)

One week into 2010 and it feels like it would be one great and thrilling year (sport wise at least). But despite all, happenings across Africa in last few days have just been disappointing, if not disturbing.

Only in Africa would:

- A government let it national team travel through a war zone to go for a continental tournament. After they’ve been shoot at and lost 3 member of the team, the said government sends a presidential jet to get the rest of the team back home. How ironic. The Togo national team bus shooting will definitely spread a dark cloud over 2010’s African Cup of Nation tournament.

- A president/ruler get shot at [fatally] in head or go into a comma and still insist on leading a country. The Nigerian president and Gabon’s military ruler have just out done themselves – almost posthumously.

- One country in the south consider legalizing prostitution while another in the east is busy gay bashing. While South Africa is considering legalizing the oldest trade in preparation for the world cup, Uganda is passing a law to hang any person perceived to be gay or an accomplice to gayism. I neither support legalizing prostitution, especially in a country that’s known to have the highest rates of HIV cases nor do I support gay rights. Just contrasting here.

Only in Kenya would:

- The finance minister rather die than quit his position? Japan’s finance minister just quit last week citing health reason and the world didn’t end – hear that Kimunya?

- A parliament that’s being faced with massive corruption cases in government, internally displaced citizens, abject poverty all over and a series of both natural and man made catastrophes consider hiking parliamentarians’ allowances. Disgusting!

- Business (matatu) owners admit that they don’t have control of their businesses. Their drivers, touts and myriad of illegal cults and cartels are in charge of business. Do these matatus owners ever make any profits after ‘taxes’.

- Buildings keep tumbling like house of cards every once in a while, loose some few Kenyans, promise ‘stern’ actions, then forget all about it and move the next hot topic. How safe are buildings? Better still, how effective are our media houses on citizen patrol?

My Day with the SmartBus

I wanted to write something about the state of transport system in Kenya, but didn’t have the energy to. I’m too tired from walking long distances due to the Matatu strike. Didn’t they have a better way to protest about police brutality and intimidation other than subject innocent commuters and school going kids to this kind of torture? Apparently even the matatu owners were not in support of the strike [according to the Matatu Owners Association – MAO chairperson].

Thanks to the strike I was finally forced to seek the services of the Smart Bus. All along I’ve had this perception that the smart buses were nothing but another inefficient government propped investment in public transport. From experience, these have always turned out to be a big flop e.g. KBS and the Nyayo buses.

My short experience with the smart bus turned out to be a rather sobering experience. Surprisingly, the company is partly privately owned, by the same company that owns Budget Kenya and has embraced technological use rather well (something least seen in .ke transport system, which is largely labour intensive). Further more, it’s far much cheaper and charges per kilometer unlike matatus which would charge a flat rate despite the distance.

Kwikfix blog has a detailed post on steps for operating a Smart Bus (as a commuter)

The only problem is that there are few Smart buses around [15 I’m told], since they are still in the testing phase. Currently I think they are only on route 126, 110, 46 and 33. If this test phase goes well, then Nairobi commuters will for once have an alternative efficient and cheaper transport mode. My hope is that they finally replace these cartel ridden, indiscipline crew 14-seaters minibus matatus. Though I still have a feeling someone in government circles has vested interest in this whole deal.

Some changes/addition expected with the smart bus system includes:

• boards at stages that let commuters know how far out the next bus is,
• SMS notifications,
• real time route info via their website,
• Other relevant mobile application.
• Set up credit top-up points at bus stops

These additions will enable commuters’ better plan their trips.