Mombasa, the 2nd largest city in Kenya after the capital city of Nairobi, is situated on the South- Eastern side of Kenya and is the smallest county in Kenya, measuring 229.9 SQKM. It is bordered by Kwale County to the West, Kilifi County to the East, and the Indian Ocean to the South. The county consists of 6 constituencies: Jomvu, Changamwe, Likoni, Nyali, Kisauni, and Mvita, but is broadly divided into Mombasa Island and the Mainland by the Indian Ocean. The county has a relatively high population growth with the County Government of Mombasa estimating the 2017 population to be 1.3 mn persons, an 8-year CAGR of 3.9% from the 0.9 mn recorded in 2009. Thus, the county currently has a relatively high population density of approximately 5,532 persons per SQKM in comparison to the national population density of 83 persons per SQKM. Economically, the county is poised as one of the regional leaders in terms of maritime trade within the continent where Mombasa Port is the largest seaport in East and Central Africa. Moreover, Mombasa is one of the leading tourist destinations in East Africa due to its location adjacent to the Indian Ocean.
Mombasa, a vibrant coastal city in Kenya, is not just a tourist paradise but also a thriving hub for real estate opportunities. As the region experiences rapid development and economic growth, investing in real estate in Mombasa has become an attractive prospect for investors and homebuyers alike.
Some of the contributing factors to the success of Real Estate in Mombasa includes;
- Mombasa: A Tropical Haven
Mombasa’s allure lies in its stunning beaches, rich cultural heritage, and strategic location. With its warm climate and picturesque coastline, it has become a magnet for tourists and expatriates. This influx has fueled the demand for residential properties, making it a promising market for real estate investors.
- Diverse Real Estate Options
From beachfront villas and luxury apartments to suburban homes, Mombasa offers a wide array of real estate options catering to different budgets and preferences. Whether you seek a serene retreat by the ocean or a bustling urban dwelling, Mombasa has something for everyone.
- Investment Opportunities
The real estate market in Mombasa is buoyant, presenting lucrative investment opportunities. With ongoing infrastructure projects, such as the expansion of the Mombasa port and the Standard Gauge Railway, property values are expected to appreciate significantly. Investors can capitalize on this growth potential by investing in commercial spaces, residential developments, or even vacation rentals.
- Emerging Neighborhoods
Several neighborhoods in Mombasa are emerging as hotspots for real estate development. Areas like Nyali, Bamburi, and Shanzu are witnessing a surge in construction activities. These locations offer proximity to the beach, modern amenities, and a cosmopolitan lifestyle, making them desirable choices for property buyers.
- Government Initiatives and Policies
Mombasa Real Estate Market Performance:
According to research conducted by cytonn in Mombasa in August 2018 covering the residential, commercial office, retail and land sectors. Below is the sectoral review of performance:
- Residential Sector
The residential sector in Mombasa recorded a marginal decline in average total returns to investors to 7.2% from 7.9% recorded in 2016. This is majorly attributable to a decline in average rental yields which came in at 5.1% in 2018, 0.6% annualized drop since 2016 when the market had an average rental yield of 6.3%. This is attributable to increased vacancies as more developments are delivered to the market which are out of reach for majority of the Mombasa residents, majority of whom are low income earners, that is, below Kshs 50,000 per month (JICA 2016). Notably, capital appreciation recorded a marginal improvement of 0.3% annualized growth to a market average of 2.1% this year, from the 1.6% recorded in 2016. The best performing segment was the upper mid-end sector, which recorded the highest returns to investors of 7.9% on average, that is, average rental yields of 5.6% and a capital appreciation of 2.3%. This is on account of investors in the region purchasing apartments in order to rent them to the growing middle class as well as long-stay international visitors in the county.
The sector’s performance is detailed below:
- Lower Mid-End
The lower mid-end sector mainly comprises developments in areas such as Tudor, Bamburi, and select parts of Nyali. The segment recorded relatively high occupancy rates with an average of 89.2%, indicating demand from the region’s lower-middle working population. Average total returns came in at 6.7%, with 2-bedroom units offering relatively higher returns of 7.4%, attributable to demand from young families and investors seeking to convert them to short and mid-term stay facilities as they are relatively affordable.
- Upper Mid-End
The upper mid-end segment mainly comprises developments in Nyali, Kizingo, and Shanzu. The upper mid-end segment registered the highest performance with average total returns of 7.9%, in comparison to the overall market’s average of 7.1%, attributable to a relatively high capital appreciation, which came in at 2.3% compared to the overall market’s average of 1.8%. This is attributable to demand for quality housing from the middle class in the region especially in areas such as Nyali and Kizingo; 3-bedroom apartments recorded the highest average annual uptake of 23.8%, indicating demand from investors.
Investing in real estate in Mombasa, Kenya, can be rewarding, but it also comes with several risks that potential investors should consider:
- Market Volatility: The real estate market in Mombasa, like any market, is susceptible to fluctuations. Economic conditions, demand changes, and global events can cause property values to rise and fall, impacting the return on investment.
- Regulatory Challenges: Navigating the legal and regulatory landscape in Kenya can be complex. Land ownership disputes, unclear property titles, and changing regulations can lead to legal complications and delays in property transactions.
- Infrastructure Development: While infrastructure development can enhance property values, ongoing construction projects can cause disruptions and inconvenience to residents. Delays or changes in infrastructure plans can impact the attractiveness of certain locations for investment.
- Economic Downturn: Economic downturns, both local and global, can significantly affect the real estate market. During economic crises, property demand may decrease, leading to longer vacancy periods and potential reduction in rental income.
- Currency Fluctuations: For international investors, fluctuations in currency exchange rates can impact the overall investment value. Currency devaluation can affect the purchasing power and returns on investment, especially if the investment is financed in a different currency.
- Security Concerns: While Mombasa is generally safe, certain areas might have higher crime rates, affecting the property’s desirability and potential rental income. It’s crucial to research the neighborhood’s safety before making an investment.The county has been prone to terrorist-related threats, stemming from the 2015 attacks by international terrorist groups such as Al Shabaab, which led to the number of international arrivals declining by a 6-year CAGR of 10.0% to 1.2 mn in 2015 from 1.8mn in 2011. This has resulted in potential investors holding off investment in the county – despite the rebound in the number of arrivals in 2016 and H1’2017, which should be an indicator of return to calm – and this has generally had a negative impact on the business environment. As a result, the performance of the office sector, for example, has been poor with the average occupancy as at August 2018 coming in at an average of 65.8%, compared to counties such as nairobi.
- Environmental Risks: Mombasa is prone to environmental risks such as flooding due to its coastal location. Properties in vulnerable areas may face damage during natural disasters, leading to repair costs and decreased property value.
- Liquidity Issues: Real estate investments are relatively illiquid compared to other investments. Selling a property in Mombasa might take time, especially during market downturns, which can pose challenges if investors need quick access to cash.
- Market Saturation: Depending on the specific area, there might be saturation in certain types of properties, leading to increased competition and potentially lower rental yields or property values.
- Management Challenges: Managing properties from a distance or finding reliable property management services can be challenging. Property maintenance, tenant management, and ensuring a steady rental income require efficient management, which might be difficult for absentee landlords.
Understanding and evaluating these risks carefully, conducting thorough due diligence, and seeking guidance from local experts can help investors make informed decisions and mitigate potential challenges associated with real estate investments in Mombasa, Kenya.
Conclusion
Mombasa, with its breathtaking beauty and economic vitality, stands as a prime destination for real estate investment in Kenya. Whether you are a seasoned investor or a prospective homeowner, exploring the diverse real estate options in Mombasa can open doors to a world of opportunities. By staying informed, understanding the market dynamics, and making prudent decisions, you can embark on a rewarding real estate journey in this coastal paradise.
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