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THE RELATIONSHIP BETWEEN INFRASTRUCTURE AND REAL ESTATE DEVELOPMENT.

Jun 10th, 2021

Even with insufficient empirical literature on determinants of real estate asset values in Kenya except reports and business journals that focus on trends, prices, demand, supply and mortgage rates in the real estate sector, the relationship between infrastructure development and real estate values in Kenya is quite evident. As the population growth rate increases in Kenya, the government and private sector players have attempted to meet the infrastructure needs of the residents by providing road, rail, airport, and port improvements.

Components like transportation, telecommunications, energy, and water supply are greatly swaying real estate investment and development decisions in towns around the country. This is because people are likely to buy or rent properties in areas that are livable. New home buyers, especially those who want to buy luxurious housing schemes are always on the lookout for developed infrastructure in proximity to their desired residential property. A developed neighborhood assures the buyer an escalation in the evaluation of the property at a rate higher than the prevailing market standards. Let’s take a look deeper at these components.

  1. 1.Transport Networks

Several studies suggest that the characteristics of the local neighborhood, transport system and environment quality are vital in the determination of residential property prices. In Kenya, from 2010 to mid-2012 the travel time to Kiambu from Nairobi CBD was more than two hours during peak period due to traffic jams and ongoing construction of the Thika super highway transport network on that route. Hence with the completion of the super highway, travel time was reduced to half an hour during peak time and fifteen minutes off peak and subsequently a rapid increase in the real estate values of properties in the area. Similarly, the upgraded Nairobi-Mombasa toll road is intended to facilitate faster transit and improved connectivity between Nairobi and Mombasa. It is expected to reduce the travel time between Nairobi and Mombasa from ten hours to just four hours. Consequently increasing the values of properties in the area.

  1. 2.Social Amenities

They include housing, electricity, pipe-borne water, drainage, waste disposal, roads, sewage, health, education, telecommunications and institutional structures like police station, firefighting stations, banks and post office. In other words, infrastructure is the large scale public services or systems, services and facilities of a country or region that are necessary for economic activity, including power and water supplies, public transportation, telecommunications, roads and school. Real estate has no value if it has no utility, if it is not scarce and if it is not effectively demanded. Real estate has significance only as it satisfies man’s needs and desires. It is this man’s collective desire for property that gives rise to value.

  1. 3.Education Infrastructure

As much as the influence of public schools on state and local development may not be directly ascertained there are a few studies arguing that school quality has a direct and positive influence on residential property values. These studies indicates that homes around good schools sell for higher prices than homes in low performing school districts holding all other factors constant. People are more willing to live in a neighborhood with good schools even if it means paying higher.

  1. 4.Commercial Developments

Another component may be the availability and quality of services, including recreation facilities and shopping. Residents are attracted to a location because of status, physical environment, and availability of services, affordability, and convenience. For instance, Athi River hosts several companies in the cement, mining and steel industries which has resulted in an influx in population and consequently housing developments to host them and retail facilities for their convenience including, Crystal Rivers Mall by Safaricom Pension Staff Scheme, Coholo mall right behind Everest Park Estate and signature mall.

The underlying fact is that there is an effect of infrastructure development on real estate pricing. An area like Athi River is one of the areas that has strategic development programs in place hence attracting investors and speculators who are hoping to cash in on ambitious development programs, as a result demand is high hence pushing the prices higher. The factors that lead to high pricing of the real estate in Athi River include improved transport networks, improved social amenities, more industries, expanded educational institutions and more commercial centers.

To find out the best real estate property to invest in around Athi River area, check out this report by Cytonn real estate. https://www.cytonn.com/uploads/downloads/athi-river-investment-opportunity.pdf