They say that you can never go wrong with property investments. That real estate in Kenya is one of the safest and most stable ventures for anyone with sufficient capital. What’s more, you’ve probably heard of many real estate companies in Kenya that have made a fortune off developing and selling properties.
But, is real estate in Kenya really the one goose that guarantees golden eggs for the long haul?
The Current and Future State of Real Estate In Kenya
Based on what we’ve witnessed from high-end real estate projects in the second half of the decade, I must admit that the market dynamics are increasingly changing. High returns are not guaranteed anymore, even for high-capital developers who typically work closely with construction professionals.
Don’t get me wrong though. I’m not saying real estate in Kenya has lost its investment lustre.
For the record, it’s still as stable as ever, even for low-capital real estate investors. We’re only experiencing a temporary plateau owing to various economic and social factors such as reduced credit access, increased taxation, a stagnant job market, an unsustainable balance between supply and demand, an increase in the volume of distressed properties, decreased economic growth, the changing preferences among buyers, plus of course, the Covid-19 pandemic.
As a result, developers are taking much longer to offset their properties. And when they eventually do, figures published by Knight Frank suggest that the properties are selling at 6% less every 12 months.
It’s worth noting, however, that while the slump has persisted for about two years now, the real estate market in Kenya is expected to bounce back in the near future.
Banks are already revising their interest rates to accommodate high-risk borrowers, the government has been forced to readjust its public debt portfolio, land prices are gradually dropping, money-laundering through property sales is not as rampant any more thanks to new legislation, devolution is progressively decentralizing urbanism, the law is catching up with deceptive developers, etc.
Combined, these factors are set to revive the property boom we enjoyed between 2009 and 2013.
But, make no mistake about it. The real estate market in Kenya as we previously knew it is no more. Although it’s expected to improve with time, one thing it won’t do is go back to the days of speculative buying, unregulated development, deceptive marketing, and unfounded property valuation.
That means you won’t be seeing developers making a killing from stuff like “off-plan” units that promise the world. Instead, only strategic developers who know just how to work around the increasingly changing variables will be left dominating the market.
So, in short, today’s real estate in Kenya is not for everyone. Huge investment capital and the backing of construction professionals just don’t cut it anymore. It now takes much more than that to generate decent returns.
And speaking of which, a perfect example of how the tables could turn on a seemingly promising construction project is the English Point Marina in Mombasa.
Enter The English Point Marina Real Estate Project
Well, it was completed all right, and to some, it might feel like an architectural masterpiece. In fact, so monumental is it that the president himself couldn’t miss out on the opening event.
This was back in 2016, barely 5 years after the developer broke ground on the Ksh 4.8 billion project. The bulk of the financing came from KCB bank, and it saw the English Point Marina put up a fully-featured resort on 4 acres of land in the up-market Nyali Creek area.
Among its facilities is a luxurious hotel with 26 rooms, a serviced 88-berth marina, a watersports centre, a boardwalk with retail outlets, a gym and spa, a seafront restaurant, 96 serviced apartments, as well as a swimming pool, casino, roof-top restaurant, plus conferencing amenities.
Well, I must admit, putting up all these facilities is no easy feat. It’s certainly an achievement worth celebrating.
However, despite all the flair, the English Point Marina sits on a rather dark reality. The developers might not publicly acknowledge it, but the fact of the matter is, the English Point Marina has been a failure as far as real estate ROI is concerned.
So, stick with me as I walk you through the avoidable mistakes that have collectively watered down an otherwise promising real estate project.
Please note that the inferences here are based on my own personal opinion, and that this article is purely for educational purposes.
Mistake 1: Poor Profiling of The Target Market
According to the developers and financiers of English Point Marina, the whole resort plus the accompanying apartments and amenities were built specifically for billionaires across the world.
As the only marina in mainland east and central Africa, English Point was expected to boost the profile of Mombasa on the tourism map, and serve as the core access point for billionaires touring in yachts and small boats. Its developers specifically likened the English Point Marina to Monte Carlo in Monaco, which is renowned for its never-ending flow of high-profile guests from all over the world.
Now, to achieve such a status, a lot of money went into building and accessorizing the harbour. The developers put up dozens of moorings, as well as supporting facilities for fuelling, servicing, and washing super-yachts.
Then since billionaires would want the very best, the English Point Marina had to come with a luxury “beach” resort, plus equally-lush suites and penthouses.
The off-plan rates for the 3-bedroomed apartments ranged between Kshs 33 million and 50 million when the project kicked off, while a penthouse would set you back Kshs 150 million. Then on completion, the prices for the units shot up to Kshs 42.5 million-82 million, with the penthouses costing a whopping USD 2 million.
Sounds pricey, I know. But, for the target market of billionaires, that might seem like a fair price range. So, it’s understandable why the project felt like a worthwhile real estate venture back in 2010.
Sadly, however, the billionaires’ class is a double-edged sword. While they have the funds for buying pretty much anything, they’re quite selective when it comes to it. Billionaires want nothing but the best that money can buy.
So, if the English Point Marina wanted to attract this market, they had to outshine all the marinas in the region in terms of value.
Well, for starters, billionaires want more than just berths, a hotel, and a set of apartments. Sure, they can dock their 30m yachts, order hot meals, sleep in the apartments- but then what?
Compare that with, say the Eden Island Marina in Seychelles, which is now popular among the billionaires’ class. They get to dock their superyachts of up to 115m in length, as well as purchase private villas.
Most importantly though, the Eden Island Marina is famous for offering yacht owners the full island experience. I’m talking about advanced berthing facilities, luxury resorts, shopping areas, specialized fishing, night clubs, picturesque sandy beaches, diving excursions, etc. You could even charter a yacht for private trips around the Indian Ocean.
Here’s a video of the development:
Ok, but what about the local market in Kenya? Why is Kenya’s super-rich not buying properties in the English Point Marina?
Unfortunately, it turns out the typical Kenyan billionaire doesn’t own a yacht. So, of course, they’d only be concerned about the accompanying properties.
But, when it comes to that, the apartments at the English Point Marina are a bit pricey, owing to the high cost of constructing moorings.
The fact is, only yacht owners stand to get reasonable value for their money, while local buyers, on the other hand, would be better off investing in other types of properties.
Going by the current real estate market rates in Mombasa, one would rather invest in a luxury villa than purchase an apartment at the EnglishPoint Marina. A standard high-end 4-bedroomed unit with a pool goes for Kshs 40-100 million, which is pretty much the same price bracket for English Point’s properties.
Mistake 2: Unstrategic Site Location
The English Point Marina is built on a 4-acre beachfront plot along the Mombasa Harbor. That means vessels can easily access it from the international waters beyond the coast of Mombasa.
On the flip-side, however, the channel isn’t exactly what the moneyed class has in mind when they think of tropical beach holidays.
Well, for one, the channel is flanked by Mombasa Old Town on the opposite side. Hence, while Old Town locals have a stunning view of the marina from their end, the same cannot be said for EnglishPoint’s residents.
The best you can get here after purchasing such costly apartments are views into Old Town and Fort Jesus. But, although both of these UNESCO heritage sites have a bit of historical significance, they are not particularly attractive to the eye.
In fact, some of their structures have been neglected for many years and appear dilapidated from the opposite side of the channel. Additionally, raw sewage from a section of the properties along Mzizima, Old Town, and Makadara is dumped directly into the ocean right across the marina. All these are things potential investors have been noticing right off the bat.
Another problem with the site location is the rather small-sized plot. While 4-acres would have been sufficient for a typical beachfront apartment complex, they are hardly adequate for the type of facilities that would attract billionaires.
A 4-acre marina would do comparatively well in Monaco because of all the prime amenities accessible from the coast. But, unfortunately, that’s not the case when it comes to the EnglishPoint Marina. The site is located deep within Nyali, where you only get basic amenities.
This is an area that’s essentially surrounded by apartments, plus standard shops and restaurants. Otherwise, the main Nyali Beach and the Nyali Golf Country Club are a bit far-off for strollers. About 5 kilometers away from the EnglishPoint Marina to be precise.
So, to make up for the lack of local supporting amenities, the marina’s designers decided to squeeze all sorts of facilities into the 4-acre plot. And the result was a rather dense concentration of standard-sized apartments, resort suites, restaurants, decks, conference rooms, spa rooms, a swimming pool, and a gymnasium.
The English Point Marina now feels like more of a highrise complex and less of a luxurious tropical marina. The apartments alone are a bit of a tight squeeze for their price bracket- which is certainly not what billionaires would go for in not just the coastal market, but also real estate in Kenya at large.
Whichever way you look at it, the English Point Marina is a real estate investment failure.
And to understand the scale of the failure, picture this- if the construction fund of Kshs 4.8 billion had been left untouched in a savings account, it would have yielded several billion shillings in interest by now. Or rather, had they bought government bonds instead, they’d have made close to Kshs 5 billion shillings by now.
Make no mistake though. I’m not advising real estate investors in Kenya to direct their funds to other ventures. Rather, I’m barely cautioning that you might not want to proceed with a commercial construction project without an in-depth feasibility study. (Learn how to conduct a comprehensive one from our real estate feasibility study guide.)
Overall, real estate in Kenya has great yields. But, it could also go terribly wrong. The choice is yours.