Kenyan Diaspora Reaps Financial Reward from Real Estate Back Home
Kenyans in diaspora, who have invested in the real estate sector back home, are reaping handsomely as property prices and rental yields appreciate swiftly.
They are getting nearly double their investments as property industry in the East African nation booms, with prices maintaining an upward trajectory.
Those who had invested about 100,000 U. S. dollars in the sector a decade are getting about 95,000 dollars on their investments.
It is a return that outweighs investments in real estate sector in countries like U.S., where a good number of Kenyans living abroad stay, according to real estate experts.
HassConsult and The Mortgage Company (TMC), real estate firms, in a property analysis report released on Wednesday in the capital Nairobi, revealed that the sector is currently one of the best investments for Kenyans living abroad.
The two noted that a Kenyan staying abroad who bought a house worth 118,647 dollars in 2002 will currently sell it at 222,352 dollars.
“Buying 117,647 dollars home in Kenya with a 20 percent deposit and a 9 percent interest rate over a 10-year period yielded a return of 222,352 dollars,” said the report.
This, according to the experts, was incomparable to investing in the U.S., where interestingly mortgage rates are much lower.
“Buying a home worth a similar amount in the U.S. with a 20 percent deposit and a 3 percent interest rate over a 10-year period yielded a return of 43,529 dollars,” said the analysis.
The high returns on investments back home for Kenyans living abroad is because property in Kenya has appreciated by at least 300 percent in the last decade.
“Property in Kenya over the last 10 years has appreciated on average 331 percent, compared to that in U.S. where it has grown by an average of 50 percent,” said Carol Kariuki, the managing director of TMC.
The realtors calculated the returns by subtracting total cost of home from current value of property in both countries at the end of the period in review.
The companies further noted that Kenyans living abroad are making good returns on their investments because of low mortgage rates, mainly offered in dollars.
The Kenyans are paying between 9 percent and 10.25 percent as compared to other people in the East African nation, who have to grapple with steeper mortgage rates, some as high as 22.5 percent.
“Kenyan mortgage takers are really suffering because of high interest rates offered by many suppliers. In some cases, they are now paying tens of dollars in extra interest payments a year,” said Kariuki.
The good returns in real estate sector in the East African nation have seen Kenyans in diaspora increase remittances back home, with many investing in the industry.
In August, Kenyans abroad sent home 94.82 million dollars compared to 92.74 million dollars recorded in July, according to Central Bank of Kenya (CBK).
“This represented a 2.2 percent increase. The average remittances inflow in the year to August this year amounted to 93 million dollars up from 66.5 million dollars recorded in August 2011,” CBK’s director of research Charles Gitari said in a report.
Gitari noted that Kenyans have sustained upward trend of remittance inflows since the second half of 2010. In March, Kenyans send home 106.2 million dollars, the highest ever since CBk began to track inflows.
In May Kenyans remitted 101 million dollars and in April 96 million dollars. Similarly, in February, Kenyans remitted 104 million dollars.
Most of the remittances came from Europe, North America and Middle East. Analysts note that the money is mainly invested in the real estate sector.
According to Knight Frank, a real estate company, Diaspora remittances have helped to drive up growth of the property sector in Kenya.
The company in a survey released two months ago observed that the capital, Nairobi recorded the highest growth, 25 percent, for high-end residential properties in the world in the last one year.
The Kenyan coast, another favourite destination for Kenyans in Diaspora and investors, followed with 20 percent rise.
According to HassConsult and TMC, rental yields in Nairobi are also rising fast, giving, especially Diaspora investors good return on their investments.
In the last quarter, rent rose by up to 4.5 percent, with apartments recording the highest increases.
“Overall rise in asking rents was 4.5 percent in the third quarter, with the steepest rise in apartment rents up 4.2 percent, followed by standalone houses up 3.6 percent. Town house asking rents also rose 2.8 percent over the previous three months,” said the companies.
Real estate analysts believe that with economies of countries like U.S. and others in Europe where Kenyans are living registering growth, the East African nation’s property boom is yet to start since remittances are set to rise.
The rise in remittance is expected to push up property prices with developers seeking to build homes that appeal to those abroad.
The trend is already being experienced in Nairobi and its environs currently as property developers make luxurious residential areas with golf courses.