Real estate prices driven by growth of the economy

Kenya, particularly Nairobi, is witnessing unprecedented growth in real estate prices. Home buyers question whether real estate prices are “sustainable” at current levels or whether we are in the grip of a housing bubble’. In other words, is the trend supported by fundamentals or does it stem from speculative pressure?  
These questions will be explored subsequently but for now, let us examine the basic question of economic growth. When compared with other emerging markets, Kenya appears to be perfectly normal.  Take China, currently the world’s fastest-growing major economy at 10 to 13 per cent annually.
As new investors enter the economy, they need office space but also employ more people who need to eat, sleep, shop and play. So India has seen increased demand for commercial and retail space, as well as schools, hospitals and movie theatres.
Real estate is also growing . In 2004  alone, the average housing price in China jumped 14.4 per cent.  Despite complaints of over-pricing, homes were snapped up by the market with 382 million square metres of housing sold, an increase of 44.12 million from the previous year.
Today, home ownership in China is at an all-time high at 59 per cent of urban households.
The same trend is discernable in India whose GDP grew by 9.4 per cent in 2006-07, making it the second-fastest growing economy in the world.  
The result has been an expansion in the real estate, hospitality and infrastructure sectors. Overall, Indian real estate, including housing, is expected to grow faster than the economy overall at about 14 per cent annually for the foreseeable future.  
Although Kenya is not growing at 9 percent (yet), we have some of the same demand drivers as India and China. As more entrepreneurs invest here, and focus primarily on Nairobi, we will see more demand for commercial space, followed by increasing disposable incomes and more retailing. Tourist arrivals have almost tripled since 2000 and should quintuple between now and 2012, driving demand for hotel rooms and convention centres.
As horticulture booms, we’ll need more warehouses. Indeed, the performance of these three sectors is expected to outpace the growth of the overall economy.  
Behind the statistics and graphs are real people who need a place to eat and sleep. As long as bottlenecks remain on the supply side, Kenyans should brace for prices to continue their upward trajectory.

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