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Why some investors confuse this for a bubble

As a result of the sector’s resilient performance despite the long electioneering period, the property prices have held with the low increases in both rents and asking prices, investors have ascribed this to a possible property bubble.

This is due to:

  1. High Returns: The growth of the sector has been mainly characterized by soaring house and land prices, as well as rental rates, resulting in high returns to investors. Over the last half decade, real estate returns have offered returns at an average of 25.0%, higher than the traditional investment classes, which offer an average return of 12.4%. This growth in prices has left some investors apprehensive,
  2. Oversupply in some themes such as commercial office:As of 2016, the office sector recorded an oversupply of 3.2 mn SQFT, leading to investors speculating a similar outcome for the housing market,
  3. Peaks and troughs in price growth: As per the Kenya Banker’s Association –Housing Price Index, house prices grew by an average of 0.8% year to date, compared to a 1.8% growth the same period last year leaving investors wondering whether this is a bubble burst. Additionally, some attribute the increase in prices to a boom that is headed for a bust. However, the average price-to-rent ratio in Kenya is3????, compared to bubble periods in places like the US where the price-to-rent ratio was as high as 20 times.

Source: Kibunyi, Duncan & Ndiritu, Simon Wagura & Carcel, Hector & Gil-Alana, Luis. (2017). Real estate prices in Kenya: is there a bubble?. Journal of Housing and the Built Environment. 10.1007/s10901-017-9541-x.