Land is an important factor of production. In Kenya, just as in many other societies, it is essential for wealth creation and the ownership brings social and political power depending on the acreage under one’s custody. Currently, about 80% of the population derive their livelihood from agriculture. However, only 20% of this land is arable. This means that a huge percentage of the country’s population lives on the 20% categorized as medium to high potential land for agriculture. Consequently, this has elevated land to be one of the most prized assets and the country is grappling with high demand that has resulted in conflicts.
In this regard, the prices of land have been going up since it became clear that it is a non-renewable resource and everyone wants to own one. Today, the real estate sector is experiencing a boom and urban centres across the country are under siege by land investors. As an illustration, Hass Consult, a real estate consulting firm, reports that suburbs in Nairobi registered a 0.2 per cent price growth over the last quarter of 2018 while satellite suburbs posted a 2.4 per cent increase. They have tracked the prices since 2017 which have increased 6.25 times. However, the rush to buy land has led to a lot of speculation and the basis of pricing is not well understood by many people. Factors that influence land prices
The value of a plot of land can be determined by two methods. One involves using the principle of highest and best use. This involves determining the economic viability of a piece of land based on the income it could generate in the future. The other method involves determining the land values of the surrounding areas then determining the value of your plot of land based on those values. This is called comparative market analysis. However, by and large, the prices can be influenced by:
- Infrastructure development: development of infrastructure in an area influences a rise in land prices. Infrastructure such as roads, railways and bridges, connecting different parts of the country helps make them accessible to more economic opportunities. This leads to a rise in the standard of living and soon such areas become attractive to live in and demand for land in those areas rises and so do the prices. Areas, where infrastructural development is yet to take place experiences a stagnation in their land prices and land, is not as expensive.
- Inflation: an excess amount of money in circulation in the economy leads to a rise in the prices of goods, including land prices. To guard against inflation, sellers hike the prices to conserve value for money.
- Demand and Supply: With population growth comes to a rise in demand for land as many looks for places to settle. Consequently, an increase in demand leads to a jump in land prices. When living in certain areas is found desirable, the demand for land in those areas also raises and consequently the land prices. This perhaps explains high land prices in Nairobi City whose population is also bulging.
- Changes in Surrounding Areas: Changes such as influx in population or infrastructure development in an area can lead to a rise in land prices for the surrounding areas. As the areas expand, demand for land in the surrounding areas rises and therefore the land prices also increase. Catastrophic events such as frequent terrorist attacks or natural disasters can affect land prices in the nearby lands as living in and around such areas is no longer desirable.
- Availability of Amenities: Amenities such as health facilities, schools, shopping areas etc., have an influence on the price of land. With such facilities nearby, they will help save time and money for the prospective buyers. This is seen as an added benefit to buyers. Therefore the land will be valued higher as compared to land not accessible to such amenities.
In our part two on the next edition, we will explore challenges facing land investments in Kenya. Make sure you subscribe to our newsletter so as not to miss out on insights regarding pitfalls around land investments.