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Why Buyers Hold All The Bargaining Power in High-End Home Negotiations

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Oversupply of high-end homes in the market coupled with tough economic times that Kenyans find themselves in at the moment has put pressure on developers leaving buyers in firm control of the market, a new survey shows

The Knight Frank Prime Global Cities Index (PGCI) that assessed market conditions between January and September 2019 shows that house prices in Nairobi’s high-end market fell by 5.4% as the impact of bad loans was felt in the real estate sector.

According to the report, values of prime residential real estate continued to drop as the market softens, albeit at a slower pace compared to the 6.7% in the year to June and 6.5% in the year to March, as buyers sought opportunities in a market segment still influenced by oversupply and properties reclaimed by banks or their agents after borrowers defaulted on their loans.

The values have been declining at varied rates year-on-year successively since 2016. However, values
are still more than 30% higher compared to 2010, validating prime residential properties as a good
investment for capital gains.

Anthony Havelock, the Head of Agency at Knight Frank Kenya attributes the slow down of the sector to illiquidity in the market and the high number of defaulted mortgages in the country’s capital.

“We haven’t reached the bottom of the cycle yet and we expect to see further reductions in the near-term until the macroeconomic and local situations improve. One of the major issues right now is illiquidity in the market.”

“The rising number of distressed properties in Nairobi has also affected prime residential values significantly, with lenders intensifying efforts to recover non-performing loans through the sale of collateral,”

Anthony Havelock, Head of Agency at Knight Frank Kenya

“Deals are happening but are few and far between, and at discounted rates. It will take time for the economy
to rebound considering it’s also not immune to external shocks,” he added.

However, the real estate company forecasts that the removal of the interest rate cap should see a return of liquidity to the market which will, in turn, lead to a recovery in the medium term.

The price decline placed Nairobi 43rd amongst 45 cities covered by the index, demonstrating the ongoing
pricing correction.

According to the report, the change in prime prices for all 45 cities averaged 1.1% in the year to September 2019, dropping from 3.4% in a comparable period last year and 4.2% in 2017, as the slowdown in global luxury
residential markets gathered momentum.

“Despite a longer-than-expected period of loose monetary policy and steady wealth creation, luxury sales
volumes are at their weakest for several years in many first tier global cities,” the report notes.

Slower global economic growth along with escalating headwinds – US/China trade relations, Hong Kong’s political tensions, a US presidential election in 2020 and the Brexit conundrum – are influencing global buyer sentiment.

See Also: Unable To Pay Sh38bn Loans, Kenyans Risk Losing Their Dream Homes

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