Is it time to exit real estate and go into bonds in Kenya? The jury is in – rent prices are stagnant, increase in house prices slow and let us not ignore the number of empty apartments and offices in up market areas in Nairobi.
You can argue that there is still a high demand for property in middle income areas – this still remains largely true.
However, speculative land buying has significantly escalated the land prices in middle income areas resulting in muted returns should one invest in a house or apartment complex.
Gaining a total return of more than 11% on real estate is becoming increasingly scarce whereas the current one year Treasury bill stands at 10.4-10.9%. Which begs the question – why take on a substantially riskier asset for the same return as a relatively ‘risk-free’ investment?
I think many investors find safety in owning a plot of land or a house – an emotional investment decision rather than one based on maximizing return on investments. For many, owning a piece of property is considered a great achievement and this has been engrained in our minds through culture over a period of generations.
Like many things in life, real estate returns go through cycles. It is likely at some point in the future the real estate market will enter into another boom phase, however there are no clear economic indicators that another boom may take place in the next five years.
Is it time to get out of real estate? For the vast majority of investors – I think it’s time. You be the jury.
