Striking gold: Where most Kenyans enjoyed best returns on investment

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Striking gold: Where most Kenyans enjoyed best returns on investment

In Summary

  • The price of land in Nairobi rose by 0.24 per cent in the second quarter of the year, compared to an increase of 0.4 per cent in a similar quarter of 2017.

  • The scramble for investors to cash in on land prices has pushed up prices in Kenya to one of the highest in Africa.

  • The average value for land per acre in Nairobi’s suburbs has gone up from Sh30.3 million in December 2007 to Sh189.9 million in September 2018.

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By BRIAN NGUGI
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This means Kenyans who bought land over other asset classes reaped higher returns this year, according to industry data.

On average, the price of land in Nairobi rose by 0.24 per cent in the second quarter of t he year, compared to an increase of 0.4 per cent in a similar quarter of 2017, according to an index by property consultant Hass Index.

The scramble for investors to cash in on land prices has pushed up prices in Kenya to one of the highest in Africa. The Hass index, for instance, shows that land values have increased by 6.28 times since December 2007 to date in Nairobi.

For example, the average value for land per acre in Nairobi’s suburbs has gone up from Sh30.3 million in December 2007 to Sh189.9 million in September 2018.

SATELLITE TOWNS

On the other hand, land in satellite towns saw an increase of 0.59 per cent over the quarter, compared to a 0.5 per cent drop recorded in the preceding quarter of 2018, signalling that those investing in the asset class are still reaping good returns.

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Land values in some of Nairobi’s satellite towns have increased by as much as 8.50 times since December 2007, according to the Hass index.

That means an investor who put in Sh1 million at the end of 2007 in land at one of the many Nairobi’s satellite suburbs has made Sh8.5 million compared to Sh2.5 million made by an investor in bonds, Sh1.28 million invested in savings and Sh600,000 invested in equities.

According to experts, real estate prices have been less volatile compared to other investments. They have also been useful as a hedge against inflation.

“Real estate provided the highest returns as evidenced by the property boom. This includes construction and speculative buying of land,” says University of Nairobi economist Peter Muriu.

REAL ESTATE

At the top with real estate are the shares of listed companies, infrastructure bonds, Treasury bills and bonds and bank deposits.

Kenyans also put their money in domestic equities and fi xed deposits which remained the most popular asset classes among fund managers, analysts said.

The two investment platforms jointly accounted for nearly 62 per cent of portfolio allocation, according to PwC’s Africa Asset Management report.

Government securities were also a common asset class and accounted for about 17 per cent of investment this year, the report shows.

The remaining 21 per cent was split between corporate bonds (11 per cent), cash and demand deposits (4.5 per cent) and other assets (six per cent).

INFRASTRUCTURE BONDS

“The highest returns are seen in infrastructure bonds,” said Mr Kunal Ajmera, chief operating officer at consultancy firm Grant Thornton. “As far as listed shares are concerned, we have witnessed a good rally till August this year and those who had invested earlier made good returns on their investment.”

The last two months have seen a drop in share prices of all the listed entities, and s ome of them have actually fallen by up to 10 or 20 per cent.

“All gains made by local investors has been washed away as there has been an exit of foreign investors due to the nervousness created by withdrawal of IMF support,” said Mr Kunal.

Despite this drawback, over the first three months of the year, the stock market recorded impressive gains with equities giving a return of up to 14.8 per cent.

And while yields on shorter-term bonds have dropped, the yields on most of the longer term bonds (three to nine years) have been on the rise.

LONGER TERM

“Yields on the much longer term bonds (10 to 25 years) have dropped, a reflection of investors’ willingness to take longer term risk as the political risk seen last year has reduced significantly and yields improved in international markets as the global economy improves,” said Mr Paul Njoki, head of wealth management at Standard Chartered Bank Kenya.

And while most banks exp erienced a growth in deposits in the first half of 2018, there was a decline in loan growth due to the interest rate cap on loan rates.

“We think that this will change in the next 12 months as deposit rates come down post removal of the deposit rate floor (rate cap Bill),” said Mr Njoki.

HIGHER RETURNS

Going forward, he said, the segments likely to have higher returns over the next year include US equities whose valuations have remain elevated.

“We believe clients will be looking to diversify into global equity and bonds to pick out superior returns from international markets,” he said.

Mr Muriu said with expected economic stability and prospects of growth, Kenyans may going forward witness better returns in real estate, hospitality, ICT and agribusiness.

However, the fortunes in agribusiness are subject to the vagaries of weather.

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