Kenya Property Report: Larger Units Outperform Studios in Rental Returns

Investors are witnessing substantial returns from large townhouses and maisonettes, as highlighted in a recent report from the Kenya National Bureau of Statistics (KNBS) for 2023/2024.

Among residential properties, two-bedroom townhouses yield an impressive 8.3% annually, while three-bedroom maisonettes offer an 8% return. In contrast, studios and bedsitters are the least lucrative options, with a notably low yield of just 2.2%. The KNBS report emphasizes that gross yields can differ significantly according to location and property attributes. For instance, a two-bedroom townhouse priced at an average of Sh17.35 million commands a monthly rent of Sh120,000, resulting in an annual income of Sh1.44 million.

Similarly, three-bedroom townhouses and apartments, valued at Sh23.2 million and Sh13.4 million respectively, both deliver a 6.7% yield, with corresponding monthly rents of Sh130,000 and Sh75,000. A three-bedroom maisonette, which is valued at Sh20.9 million, generates a monthly rent of Sh140,000, translating to an annual yield of 8%. On the other end of the spectrum, the lower profitability observed in studio apartments and bedsitters, which are typically priced around Sh4.6 million, yields a meagre monthly rent of Sh8,500.

This equates to an annual income of Sh102,000 and results in a yield of 2.2%. Single rooms or student hostels, approximately priced at Sh1.25 million, achieve a monthly rent of Sh6,500, leading to a yield of 6.2%. Despite the variance in rental yields, real estate investors hold the potential to augment their total returns via capital gains. However, current yields on real estate are trailing behind those of fixed-income assets, such as Treasury bills and bonds, as well as certain blue-chip stocks which offer higher dividend yields.

Notably, investors with similar property types may experience differing returns based on various factors including location, unit quality, and tenant demographics. The report reveals a significant trend in the rental market: properties boasting higher yields suggest tenants are paying a greater proportion of the costs associated with acquiring or constructing these homes. This trend presents a clear opportunity for investors aiming to optimize their returns, though it is accompanied by the inherent risks typical of the real estate sector.

In summary, while large townhouses and maisonettes represent compelling investment opportunities through attractive rental yields, potential investors are urged to conduct thorough assessments that consider location, property characteristics, and prevailing market conditions.