The Kenya Bankers Association’s (KBA) first quarter 2015 house price index shows that highly exaggerated prices of old bungalows in estates such as Kilimani and Kileleshwa have made it hard for investors to make money from redevelopment of the property.
Following the relaxation of Nairobi zoning laws, which opened upmarket estates to high-rise developers, investors have been buying and demolishing old bungalows to pave the way for construction of apartments.
The huge demand for land in estates such as Kileleshwa has led to an unreasonable increase in prices of old houses, with a bungalow sitting on an acre of land costing up to Sh300 million.
This has now forced many apartment developers to look elsewhere.
Nairobi has in recent years experienced a wave of apartment developments especially in upmarket estates as developers seek to meet the rising demand for housing in the city.
The supply in the market is, however, inclined towards the middle and high income classes, with low income earners still experiencing constrained supply of decent shelter.
Real-estate firm Hass Consult said in its fourth quarter 2014 ownership index that the average monthly repayment needed to buy an apartment in an upmarket estate in Nairobi stands at Sh140,000 a month, an amount that is way above the salaries of most workers.