As climate change continues to bite, rendering agriculture a less viable business undertaking, many people residing in places that were previously largely agricultural are now shifting their focus to real estate.
Parts of North Rift and South Rift Kenya, for instance, such as Kericho and Eldoret, are witnessing a significant conversion of agricultural land into land that is being used to set up commercial real estate developments such as high-rise apartments, business hubs, retail outlets and hospitals.
Similarly, many places in Central Kenya, especially in areas such as Nanyuki, Murang’a and Nyandarua are witnessing the subdivision of large tracts of land that were previously being used for agriculture into small plots on which developers are putting up residential apartments.
Even remote areas in counties such as Taita Taveta are witnessing an unusual trend where the small pieces of land that were viable for agriculture are now being converted into commercial land to develop real estate. This is especially common among the younger generation, who after inheriting property from their parents, opt to venture into real estate that offers steadier and larger returns.
“In a village in Kericho where less than two years ago you would not have found a single high-rise development, you will now find up to seven high-rise buildings. Next to this, you will find upcoming developments such as hospitals, retail outlets or schools, targeting the tenants that occupy these buildings,” says Brian Sigei, an architect based in Eldoret.
This, of course, has resulted in a significant reduction in agricultural production. According to recent findings by the Tea Board of Kenya, tea production declined in the year 2022 for the first time since 2017. Due to poor production, black tea sales fell by 22 per cent in the first nine months of 2022 to only 333.4 million kilograms.
Similarly, coffee production declined in the year 2022, partly as a result of a sharp increase in fertiliser prices, brought about by the Covid-19 pandemic, as well as the ongoing war in Ukraine. Consequently, many coffee estates, especially in Kiambu County, were converted into commercial land between 2021 and 2022.
Many property laws have been amended over the years, and land owners in agricultural settlements are finding it easier to receive approvals to set up commercial buildings, which, according to them, offer steadier, as well as larger returns on investment.
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Horticulture earnings drop
While the shift from agriculture to real estate has had a positive impact on one sector, it has had an adverse impact on the other. Data from the Horticulture Directorate of Kenya shows that the country’s horticulture earnings dropped by more than Sh32 billion from Sh80.7 billion in the first half of 2021 to Sh48.4 billion in the first half of 2022, a 40 per cent drop in earnings.
Earnings from flowers dropped from Sh53.2 billion to Sh37.3 billion, earnings from fruits, whose production dropped by nearly 40 million kilos, fell from Sh12 billion to Sh5.6 billion, while earnings from vegetables fell from Sh15.5 billion to Sh5.4 billion.
Comparatively, the real estate market performance was on an upward trajectory during the same review period. Data from the Kenya National Bureau of Statistics (KNBS) showed that the construction industry recorded a 6.4 per cent growth in the first quarter of 2022.
Sigei points out that a number of other factors, besides just climate change and transfer of ownership, have contributed to the shift from agricultural land use to real estate. For instance, unlike a few years ago, it is now easier to receive the necessary approvals from the government for the conversion of land use.
Many property laws have been amended over the years, and land owners in agricultural settlements are finding it easier to receive approvals to set up commercial buildings, which, according to them, offer steadier, as well as larger returns on investment.
“It used to be very difficult to turn fertile land that was used for farming into a residential property. It was easier to convert dry areas into residential properties, but then again not many people had the capacity to make the most out of such pieces of land, which generally were marginalised in terms of infrastructure development,” notes Sigei.
While previously the power to control land use and development in Kenya lay with the national government, now, it is the county governments that carry this mandate. This factor has helped to hasten many land approval processes. Anyone intending to develop his or her property for a purpose other than that earmarked in the approved master plan simply has to make an application to the Department of Physical Planning in their respective county.
Upon obtaining approval from the county department of physical planning and a license from the National Environmental Management Authority (NEMA), a developer may commence construction within two years from the date of the approval.
Madoya, who is also based in Eldoret, says new landowners are seeing a more promising earning potential in real estate compared to agriculture, due to the high demand for housing in emerging towns and cities.
“A place like Eldoret is really different now. A lot of high-rise apartments and commercial buildings including malls and plazas are coming up in the middle of nowhere,” notes Madoya, adding that an increase in the country’s population, and by extension demand for housing, has also attracted investor interest in supporting these real estate developments.
His words are echoed by Brian Munene, from real estate development firm Purple Dot International, who explains that as cities and urban populations continue to grow, so too will larger-scale construction projects come up. This will attract even greater interest in the sector, not only from the local but also from the international players.
According to the 2023 Wealth Report by real estate firm Knight Frank, at 40 per cent, commercial property accounted for the largest percentage of rich Kenyan investment portfolios.
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“Because our towns and our cities are congested, people are now looking for a place to stay away from the busy city life. You can expect that investors and developers will also move to capitalise on this growing demand for housing away from townships,” notes Munene.
According to the 2023 Wealth Report by real estate firm Knight Frank, at 40 per cent, commercial property accounted for the largest percentage of rich Kenyan investment portfolios. Second on the list was stocks at 18 per cent, with very few respondents mentioning agriculture.
More than 60 per cent of respondents to the survey noted that they plan to invest in private rental property this year. The findings resonate with ABiQ’s Kenya Construction Project Market Report, which further notes that the construction industry spending is set to increase by more than 13 per cent from Sh333.75 billion in 2022 to Sh377.9 billion in 2023.
Munene, of Purple Dot International, further points out that many people are opting for real estate assets because, unlike other investments, the sector is not easily affected by external factors such as climate change, currency fluctuations and inflation.
He also says that while factors such as the Covid-19 pandemic and the ongoing war in Ukraine have disrupted supply chains, leading to a significant increase in prices of key construction materials such as cement, steel, paint and aluminium, the development of new technology and applications has made it possible for developers to build cheaply without compromising the quality of the structures. This has guaranteed both developers and their investors greater returns on investment.
Some technologies such as the EPS building technology, for instance, designed to reduce material wastage and the amount of labour needed, have been known to cut construction costs by up to 30 per cent. The technology can be used in the construction of a 20-storey building. Other building materials such as interlocking bricks are also helping to cut down on material and labour costs, as well as construction timelines.
"New technologies have made it possible for manufacturers to develop sustainable building materials that reduce environmental pollution and that also perform well over time with minimal degradation. This ensures that no extra costs are incurred in maintenance, thus maximising on profits," notes Munene.
The development of road networks has also helped to open up some of these remote parts of the country, making them ripe for real estate development, says Veronica Thama of Karibu Homes.
The development of road networks has also helped to open up some of these remote parts of the country, making them ripe for real estate development.
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“Our road network has become much better in many different places. This, coupled with the quality of life outside of towns, has led many people to start looking for houses in places you wouldn't have expected before," notes Veronica, who adds that this demand for housing in rural agricultural areas is what has also been pushing many single-dwelling owners to convert their establishments to high rise developments.
But there are those that are not selling their plots or converting their use because they want to. Especially in many parts of central Kenya such as Kiambu, someone might have had a standalone home, but then the person that owns the next plot starts to build a high-rise building, invading their privacy, so the only option they have is to sell it, and perhaps a source for some additional funds then develop a high-rise too,” notes Veronica.
She adds that the only problem with such large buildings coming up so fast is that they end up exerting unprecedented pressure on existing infrastructure. By default, these developments end up losing their value in the long run.
"These buildings are not sustainable as the current infrastructure was not designed with them in mind, especially the sewer lines, water and play area for kids. Some of these areas are becoming saturated too fast, and at some point, setting up an apartment or some form of commercial real estate will not be as lucrative for the person behind the development."
Gikonyo Gitonga, who runs the real estate firm Axis Real Estate, notes that for development to be made sustainable in such areas, authorities will have to go back to the drawing board to review key sector policies and engage concerned stakeholders to make sure that they come up with inclusive solutions.
Gikonyo, who is also part of the ad hoc committee mandated with the conferment of Nanyuki to municipality status, says that ineffective legislation and low public participation in land policies in such areas have resulted in increased, unplanned land conversions.
"Many of the existing policies and regulations are completely overdue and need to be reviewed. There is a lot of work to be done in the land sector also in terms of implementation of land policies," notes Gitonga.
He adds that people are subdividing agricultural land, for instance into several 50 by 100 pieces, with no regulation. Some are then waiting for the land to appreciate over time with no other meaningful economic activity taking place on the land. This speculation is resulting in a significant increase in land value being witnessed in places such as Nanyuki.
"If things continue going the way they currently are, prices that seem astronomical today will in a few years, looking back, seem like a bargain,” notes Gitonga.
