The value of new building plans approved within Nairobi in the fourth quarter of last year declined by 11 per cent compared to the third quarter, showing initial signs of a slowing growth in the property market and a shift to the city outskirts.
Building plans worth Sh54.8 billion were approved in the last three months of 2011, which was 11 per cent lower than the third quarter but ahead of the Sh40 billion in the corresponding quarter in 2010.
The suspected slow-down in the property market is also attributed to rising costs of borrowing.
City Hall has projected a decline in the number of new construction projects within Nairobi as developers look to satellite towns where bigger and more affordable land is available.
Tom Odongo, the director of planning at the Nairobi City Council, expects a slowdown in construction after depletion of land in surburbs within the city boundaries such as South B and C suburbs and Langata where construction has been vibrant.
Doubts about “fake title deeds” in estates such as Embakasi are driving investors further outwards.
“We have exhausted land in areas that would handle major housing projects towards the South of Nairobi and now most projects are coming up in satellite towns,” said Mr Odongo.
He added that investors were wary of the land in Embakasi, whose ownership in several areas is still doubtful, to avoid “burning their fingers”.
Real estate firm HassConsult projected in its fourth quarter 2011survey that the high interest rate environment experienced since mid last year had slowed down new investment in the sector, and further declines were expected.
Farhana Hassanali, the project development manager at the firm, said most developers were likely to shelve their development plans, and in other cases stall housing projects.
Mr Odongo expects little construction works to come up around Kasarani area where most land owners have just about one-eighth of an acre of land-— but whose overall effect on construction volumes is limited.
Kiambu, Kajiado and Thika are the main towns that have gained the most from the scarcity of land in Nairobi owing to their proximity to the city where big investors looking putting up huge housing projects get expansive parcels of land.
Zeyung Yang, the managing director of Erdemann Property Development says that most of the new construction around Nairobi will be focused in satellite towns, citing the lack of affordable land within the city and its suburbs.
“I project that most development will be in the towns around Nairobi going forward because that is where we have land,” said Mr Zeyung whose firm is putting up about 700 middle income homes in two separate projects in Athi River.
The developer said the dynamics in the market show a strong demand from the middle income earners who are unlikely to afford homes within the city suburbs due to the high land cost component.
A review of the zoning guidelines in 2001 has been responsible for soaring land costs in suburbs that were previously exclusive, like Kilimani and Kileleshwa and high rise apartments fast replacing single dwelling units.
Land dealers are quoting as much as Sh200 million for an acre in these estates pushing the buyers to develop high density housing to distribute the cost.
But City Hall is making another go at reviewing the zoning guidelines likely to affect suburbs where high density residential developments are still prohibited with the City Planner saying that each segment of the housing market needs to embrace the growing population in Nairobi.
“It is through allowing for redevelopment of low density estates that we would expect to attract new investment in housing within the City,” said Mr Odongo.
Some developers in areas like Kitisuru and Runda have already expressed concern that the proliferation of apartments in the leafy suburbs was certain to erode property values and spoil the exclusivity of initial home owners.
Plans by the director of planning to permit high density development in leafy suburbs has in the past met stiff resistance from resident association with some moving to court to challenge the proposals.