Pricing: What really determines property value in the market?

If you are among the 4.5 million Kenyans who have used public transport in Nairobi, you must have encountered a scenario where the passenger next to you offers the conductor less fare than announced with a smile and no fit is thrown.

Sometimes it is you.

You will see that passenger whispering to the conductor’s ear, a laugh here a soft pat on the back there, before they jump in the vehicle, only to offer Sh50 confidently yet the announced fare is Sh100. It may even be during a peak hour.

So, this is the case within the real estate.

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The Kenya National Bureau of Statistics (KNBS) Real Estate Survey report published January 2025, lists some of the aspects of housing that dictate its price.

These are location and unique characteristics such as the number of bedrooms, gross floor areas, land size of standalone units, and floor area of flats and apartments.

“Other attributes which influence property prices include environmental factors, safety levels and existing physical and social infrastructure such as sewerage and drainage systems, roads, public transport, health centres, education centres and other social services,” reads the report.

At the same time, the report does note gaps in the sector, which could also affect how pricing is done. The report states that the real estate sector is a significant contributor to the performance of financial institutions in terms of mortgage loans as well as asset holdings.

“Property prices are used to predict a possible banking crisis and monitor trends in the property market. The real estate sector lacks data to monitor the sector’s development and financing which limits informed decision-making necessary for mitigating against potential banking crisis,” reads the report in part.

According to the report, some units sell below the advertised prices. While generally property appreciates, it could also be inferred that some prices are exaggerated to feed into the growing demand.

“The results also reveal that generally, a longer off-take time tends to reduce the actual sale price of the property. For example, properties whose off-take time was 12 months or more fetched lower sale prices compared to the advertised prices except for one- and two-bedroom apartments,” the KNBS report says.

The question then becomes: if a house is offered for Sh10 million, is it really worth Sh10 million? If so, what value should it hold next year or a decade later? What then contributes to this price appreciation?

Some six months ago, when a section of the earlier fired cabinet secretaries was being vetted afresh, Kenyans were appalled by their huge net worth improvement - barely two years after appointment, which they linked to an appreciation of the properties they hold.

Adjustment and valuation

Public Service, Performance and Delivery Management Cabinet Secretary Justin Muturi noted how his net worth had improved from Sh761 million when he was being vetted for the position of Attorney General in 2022 to Sh801 million now.

“Most of it is adjustment and valuation of small properties I have in the village and some little bit of farming that I do,” he said.

His colleague, Kipchumba Murkomen, who was the CS Youth Affairs, Creative Economy and Sports, now Interior, also had his net worth questioned as it had increased by Sh70 million since 2022 when he was being vetted for the first time.

He argued that he is a beneficiary of the mortgage scheme that comes with the office, which allowed him to access a Sh40 million property.

“My assets have generally appreciated by about Sh20 million,” he said.

These figures, to some extent, paint a picture of the Kenyan property market that players, on diverse occasions, have been forced to explain why the prices are high.

They also raise the question: who determines that property A has appreciated by this much while property Y is by that much? How exactly does a property accrue value to end up improving someone’s net worth by millions of shillings?

“Property value is driven by several factors including location, infrastructure, demand and zoning laws,” explains Mi Vida Sales Director Krupa Chohan.

Rental yields

Ms Chohan explains that having mixed-use developments, a forte of the developer, enhances value through convenience, high rental yields, and a lifestyle appeal.

“In Nairobi, appreciating land values stem from urbanisation, major infrastructure projects, and strong investor confidence in high growth areas,” she said.

SIC Investment Cooperative, Land Business Unit manager Kevin Mungai states that the infrastructure development inferred does not just mean roads and railways.

“Areas equipped with reliable utilities, and modern social amenities, like hospitals, shopping centres, and schools, tend to see stronger growth in property values,” he said.

Mr Mungai said that beyond infrastructure, Kenya’s economy also plays a critical role in real estate value appreciation. He explains that during periods of economic growth, there is typically an increase in disposable income, allowing more individuals and businesses to invest in property.

During this period, consumer confidence also rises and demand for real estate often follows suit, driving up prices.

“However, inflation can dampen this effect. Rising inflation rates can erode purchasing power, making property investments less attractive and slowing price appreciation. Additionally, inflation drives up the costs of construction materials, an already significant expense in Kenya, which further pushes property prices higher,” he said.

Knight Frank and HassConsult are some of the real estate firms that periodically release property indices that provide insight into prices.

For example, in the latest Kenya Market Update by Knight Frank, covering half the year ended December 2024, the consultant notes how the prime residential sales index increased by 8.7 per cent for the 12 months ended December 2024.

This is compared to 2.45 per cent in a similar period in 2023.

“There has been increased demand for reasonably priced prime properties from high net worth individuals and the expatriate market. This is partly owing to their scarcity, as developers shift focus to developments that target low and middle-class income residential consumers,” Knight Frank says.