Why are Houses So Expensive In Nairobi?

ByRenee Updated on
Expensive Houses in Nairobi

Over the past decade, Nairobi, Kenya’s capital, has seen a dramatic rise in the cost of housing. Whether you’re searching for a luxury home in Lavington, a modern apartment in Kilimani, or a budget-friendly option away from the city, the cost of housing keeps skyrocketing. But, what’s behind this increase? Let’s explore some of the key factors driving Nairobi’s expensive housing prices. 

High Demand and Population Growth Driving Expensive Houses In Nairobi

Nairobi is a rapidly growing city. The city is the most populous county in Kenya with a population of 4.4 million and is projected to surpass 5 million by 2035 according to the Kenya National Bureau of Statistics. Nairobi being the economic capital, attracts a variety of people all looking to benefit from the vast opportunities it has to offer. There’s the continuous migration of people from rural areas looking for greener pastures in Kenya’s economic centre who drive up the presence of expensive houses in Nairobi. Property prices have therefore increased as a result of supply struggling to keep up. 

Additionally, the city houses the headquarters of some of the world’s major multinational companies. This has attracted an influx of wealthy investors, expatriates and high-networth individuals who have in turn, led to a surge in the demand for luxury property within the city. 

Limited Land Supply and High Land Prices Creating Expensive Houses In Nairobi

Land in Nairobi is limited and expensive, particularly in prime real estate locations such as Lavington, Westlands and Karen. These areas are highly sought after because of their proximity to business hubs, shopping malls and elite schools. They also command higher prices due to their reputation for safety. Due to this limited availability, developers have a hard time constructing affordable housing, forcing buyers to pay premium prices for the expensive houses in Nairobi that are available. 

Expensive Construction Costs Leading to Expensive Houses In Nairobi

The cost of construction materials, labour and regulatory permits significantly impact the overall costs of construction and contribute to the emergence of expensive houses in Nairobi. The following is a detailed look into how the three factors contribute to high construction costs: 

  • Inflation and Currency Fluctuations: The state of the economy directly impacts property prices. The depreciation of the Kenyan Shilling over the years has led to the increased cost of building materials. For example, the price of cement went up by 15% in 2022 driving up construction expenses. 
  • Regulatory Fees: Before embarking on a project, developers must navigate through multiple approvals and high permit fees from regulatory bodies such as NEMA (National Environment Management Authority) and NCA (National Construction Authority). They must also ensure that their property complies with Kenya’s zoning laws.
  • High Labour Costs: Labour costs vary from region to region in Kenya. Nairobi being an urban area and the nation’s capital, has higher rates than the rest of the country due to its increased demand for expertise and skilled workers in the construction industry. Hiring a skilled labour force will definitely increase the property price.
Speculative Buying Impacting Expensive Houses In Nairobi

Many developers and investors view Nairobi’s real estate market as lucrative, leading to speculative buying. Speculative buying in real estate involves purchasing property with the hopes of selling it at a higher price in future. You are essentially predicting future prices for property in a particular market before the predicted spike happens. This contributes to the prevalence of expensive houses in Nairobi because it artificially inflates property values as landowners and developers wait for prices to go up before reselling their property. 

Insufficient Urban Planning and Infrastructure Costs Adding to Expensive Houses in Nairobi 

While Nairobi has experienced rapid growth, urban planning has not kept up with the pace. Developers often bear the burden of providing essential infrastructure such as roads, water and electricity, especially within neighbourhoods which adds to the overall cost of expensive houses in Nairobi. Additionally, poor planning leads to congestion pushing home buyers to opt for well-planned, gated communities that come at a premium price. 

High Mortgage Rates and Limited Financing Options for Expensive Houses in Nairobi

Interest rates on mortgages in Kenya range from 12% to 18% making them some of the highest in the continent. This makes real estate a cash-driven industry as it discourages homeownership through mortgages. As a result, developers price properties based on the assumption that buyers will pay upfront which drives up the cost of housing, ultimately increasing the presence of expensive houses in Nairobi.

Government Policies and Taxation Influencing Expensive Houses in Nairobi

Taxes on real estate transactions such as Value Added Tax (VAT), land rates, stamp duty and capital gains tax lead to the surfacing of expensive houses in Nairobi. This is because developers need to recoup the profits that are lost to property taxes.  Additionally, the government’s efforts to promote affordable housing has not yet significantly reduced the cost of mid to high-end homes. 

In Conclusion

The emergence of expensive houses in Nairobi is driven by a combination of high demand, expensive land, costly construction materials and speculative investment mechanisms. While government initiatives aim to improve affordability, significant policy changes and better urban planning are needed to make homeownership more accessible to the average Kenyan. Until then, Nairobi’s real estate market will remain to be one of the most expensive in the region. 

However, all is not lost. Homeownership is still attainable through flexible payment plans and structured instalment options that are tailored to your financial capability. These financing solutions allow potential buyers to secure their dream home without the hassle of large upfront payments. Exploring these flexible options could be the key to turning your homeownership dreams into reality.