Real estate the preferred investment destination

Rich Kenyans have continued to bet big on the country’s booming real estate market investing a quarter of their wealth in the sector. PHOTO/FILE

What you need to know:

  • Out of a total asset base of Sh2.7 trillion ($31.4 billion) they control, the 8,300 super rich Kenyans – also known as high net worth individuals have invested Sh705 billion ($8.2 billion) in real estate giving it a mark of approval as the country’s top multiplier of wealth.
  • The real estate investment market is expected to remain fairly flat in the next couple of years – growing to account for 26.5 per cent of the wealthy’s total assets in 2017.
  • A sustained bull run at the NSE in the past two years has seen these investors more than double their wealth – a trend that is expected to continue in the next four years. Over the past five years, however, these individuals have reduced their investments in equities from 25.7 per cent to 23.9 per cent.

Rich Kenyans have continued to bet big on the country’s booming real estate market investing a quarter of their wealth in the sector that has more than doubled its size in the past decade, a newly released report says.

Out of a total asset base of Sh2.7 trillion ($31.4 billion) they control, the 8,300 super rich Kenyans – also known as high net worth individuals have invested Sh705 billion ($8.2 billion) in real estate giving it a mark of approval as the country’s top multiplier of wealth.

“In 2013, real estate was the largest asset class for these individuals in Kenya (26 per cent total high net’s assets), followed by equities (24 per cent), business interests (18 per cent), cash (12 per cent), fixed income (11 per cent) and alternatives (8.8 per cent),” says the report published by London-based research firm New World Wealth.

New World Wealth’s findings are in line with recent market trends that have seen investments in high end residential and commercial housing grow steadily as prices rise.

Property developers Knight Frank say the value of investments in commercial segment of the real estate market grew at an average rate of 7.5 per cent in 2013 while investments in the residential segment of the market appreciated at the rate of 4.9 per cent.

This level of wealth multiplication has caught the attention of Kenya’s super rich making them to invest 19.5 per cent of their total assets in residential property, 5.4 per cent in commercial property and 1.3 per cent of what they own in foreign property in 2013.

BULL RUN

The real estate investment market is expected to remain fairly flat in the next couple of years – growing to account for 26.5 per cent of the wealthy’s total assets in 2017.

“With residential property prices now substantially flat, and existing home owners and landlords no longer enjoying year on year capital appreciation, investment in property is beginning to lose its sparkle,” said Hass Consult head of marketing and research Sakina Hassanali at the launch of the 2013 property index on January 23.

The equities market was the second most favoured investment class for Kenya’s super rich accounting for 23.9 per cent or Sh645 billion ($7.5 billion) of their total wealth.

The super-rich have invested Sh275.2 billion in the Nairobi Securities Exchange-listed companies, meaning that this small group of individuals controls more than 10 per cent of total investor wealth at the bourse.

A sustained bull run at the NSE in the past two years has seen these investors more than double their wealth – a trend that is expected to continue in the next four years. Over the past five years, however, these individuals have reduced their investments in equities from 25.7 per cent to 23.9 per cent.

Rich Kenyans cut their holdings of foreign equity from 15.12 per cent to 13.6 per cent of their total wealth in the wake of the global financial crisis and the subsequent recession.

The wealth have however raised their presence in the fixed income market (Treasury bills and bonds) where they now have Sh223.6 billion or 8.3 per cent of total assets up from 5.5 per cent five years ago.

The emergence of a new crop of high net worth individuals in construction, real estate, telecoms, banking, transport and logistics has convinced market watchers to project that the rich will increase their holdings in this area to 18.2 per cent in 2017 to Sh645 billion ($7.5 billion).