FIZZLING : The real estate bubble that would soon go burst


14 May 2015 | by GW Investigations
Share:
FIZZLING : The real estate bubble that  would soon go burst

Deep Sea is the name of a small informal settlement in Nairobi in the backyard of the German Embassy and close to the prestigious shopping mall Sarit Centre - a hub for Kenya�s upper class, tourists and expatriates. In a small iron sheet hut that serves as a community hall, some of Deep Sea�s residents have gathered to discuss � once again - their fear of being evicted. �You have to see reality, next year you will not be here�, says one of the organizers and heavy silence freezes the room. The people of Deep Sea live on an area that is officially termed as �missing links to the road network� in construction plans. The Kenyan government plans to build a road here and has already secured funds from the World Bank and European Union. What is described as �clearing of site, structures� in the plans can be translated as the demolition of houses, livelihoods and businesses - the market stalls, restaurants, repair garages, kiosks, care centres and pubs - of residents of Deep Sea. According to plan this should happen by July 2015, when the road constructions are scheduled to begin.

�When the bulldozers arrive, when they burn this place down, you will not stand in front of them, Red Cross won�t come for you, the German Embassy won�t come.�, continues another community organizer. And there is little time left to at least ensure that the residents will be resettled or compensated.

Ideally the community can hold the Kenyan government, the World Bank and the EU accountable to conduct just evictions that secure a future for the families. According to EU guidelines authorities shall ensure �relocation of persons and business occupying the road reserves, on the basis of a participatory approach with the affected population (�)�. Amnesty International (AI) reports that Deep Sea residents since they first heard of the road construction in 2009 have not been involved in any decision or received any information as to how many of the 12000 residents will be affected by the evictions. Community organizers have helped Deep Sea residents to form a committee to address their grievances and deliver information. As of today committee members report that the designated governmental office, the Kenyan Urban Road Authority (KURA) offers a compensation for evictions of 10,000Ksh per household � too little to start a life and business over for a whole family. Deep Sea residents, however, have vouched to remain resilient and follow the official channels so as to pressure for adequate compensation.

Community organizers also fear that private owners of the prime land will take advantage of the evictions and force other residents off the land. Deep Sea has a history of attempted evictions, more than three were through fires, a common method to mask evictions and avoid dragging court procedures. The story of eviction is one all too familiar to ten thousands of families in Nairobi. And the government has been notorious in using the least inconvenient way for them to �remove� residents. Often they come at night with police and bulldozers and start demolishing; people rushing to take the little they can carry to save their lives. Residents are often intimidated beforehand, brutalized by police or paid mobs. Leaving the affected populations in the dark about plans, unprepared and intimidated saves Kenyan authorities or private investors much cumbersome resistance and court procedures or the possible halt of the same. Because legally, evictions can only be carried out as a last resort, they must include the affected population in decision making and ensure adequate compensation and relocation. But these procedures are too expensive for the fast and shortsighted investment sector.

Indeed, Kenya�s capital city is booming of investments in infrastructure and real estate. The demand has been high as Nairobi is growing in its regional and continental role as the fiscal, economic and political center of East Africa. Nairobi is host to several UN offices, headquarters of multinationals such as Coca Cola, international media houses and organisations and of course the World Bank headquarter for East Africa. The demand for roads, luxury offices and apartments is thus high. Kenya�s luxury property growth was among the highest in the world at in 2014 according to a study by Knight Frank. With prices relatively low in the global market and high value growth, many foreign investors are attracted to invest in luxury real estate in Nairobi and coastal towns like Mombasa. Besides investment firms and the Kenyan elite, many expatriates and Kenyans in the Diaspora have made use of the market and secured prime parcels. The Real estate market has also offered a suitable avenue to store or �wash� dirty money from corruption, drug trade, human trafficking ad other illegal activities conducted by political and economic elites or criminal goons from all over the world.  In the wealthy areas of Nairobi the investment boom is very tangible with constructions ongoing everywhere; 10 store apartment and office buildings crop up in months, shopping malls and four lane roads sprout out of nowhere, equipped with pedestrian paths and street signs.

There is an ongoing debate in the national media as to whether the horrendous prices on real estate conceal a financial bubble similar to what happened in the US to spur the financial crisis of 2010. While some analysts remain wary, there are convincing arguments that Kenya is a much different case. Kenya has strong regulations and few financial risk takers. In 2014 only 19177 citizens took up a mortgage. Although the value growth has decreased slightly in the last two years, prognosis for Kenya�s real estate market remain stable and positive. Thus from a financial perspective Kenya is on the safe side. But here comes the real bubble: Only a minority of people benefit from the investment and real estate boom. The horrendous prices of real estate ensure only a tiny minority of Kenyans can buy real estate, let alone invest in it.

They also cannot afford to rent these places. A recent study by Ipsos found that 93% of Kenyans earn 40,000Ksh or less and 43% earn less than 10,000Ksh a month. Living costs, especially food prices have been increasing steadily and the majority of Kenyans struggle to survive. The same is true for Kenya�s capital, where, despite superficial efforts, informal settlements continue to grow. The majority of Kenyans is thus not reflected in the infrastructure and real estate boom. To the contrary, they are evicted in all urban centers around Kenya and along the coast as they reside on �prime property� worth billions to others. They will not live in these houses, drive on these roads or even have access to the ocean. It is large investors or investor groups that can afford to buy into the real estate market like the international consultancy firm Knight Frank. Only expatriates and Kenya�s upper class can afford to buy prime property or rent the luxury apartments in Nairobi or in the coastal towns.

So, all in all, the real estate market in Kenya is yet another example of the paradox neo-liberal logic. The real estate boom is great for GDP, great for economic growth and great for investors. It is not so great for the people losing their lives, livelihoods and business through evictions and it is not so great for the middle class, which - despite positive data - trades on thin ground. It certainly does not reflect Kenya�s constitutional aspiration of article 43.1(b) � the right to accessible and adequate housing for all Kenyans.

 

In light of this, it is cynical that the World Bank president Jim Yong Kim announced to help Kenyans in housing in a meeting held in August in DC between World Bank and Kenya�s President Uhuru Kenyatta. The World Bank is already helping Kenya in �developing Kenya�s mortgage market�. Currently mortgage interest rates are between 16-20%. If more people take up mortgages, the business is going to be more lucrative for banks including the World Bank. But the middle class is not strong enough to depend on loans as they are still vulnerable to economic conditions. The World Bank is also helping Kenya to evict people like the residents of Deep Sea to destroy their houses, while setting and enforcing structures that invite a scramble of investors at all costs � social, environmentally or else.

The real estate market demonstrates the segregation prompted by neo-liberalism � the earners and the workers, the ones who benefit and the ones who loose out in the name of profits and economic growth. Neo-liberal figures of investment and growth conceal the realities of the majority of Kenyans and Nairobians. In Nairobi, more than half the population lives in informal settlements and only about 12% of them own their houses. Nairobi�s recreational spaces account for a larger area than the area of all of the city�s informal settlements taken together. But here there are no investments to build the communities, but only those to displace them; there are no roads or malls being built, there are not enough street lights, not enough hospitals and schools and not enough security.

From Deep Sea the real estate boom is all too evident as giant apartment and office buildings are rising just behind the shanties. Informal settlements amid the wealthy areas like Deep Sea destroy the picture of Nairobi�s metropolitan growth. People don�t want to look out of their luxury villas and see iron sheet roofs. These settlements devalue the worth of the property. So, if �common practice� is applied to Deep Sea residents to disown them overnight, where will they end up? Most likely, some will remain in the ruins of their houses as long as they can, others will flock to the overcrowded informal settlements that are being pushed more and more to the outskirts of Nairobi.

So, Kenya�s real estate market bears maybe not a financial bubble, but certainly a neoliberal bubble. One, that has total disregard for what has been build, the social, cultural and economic structures of Deep Sea for example. And one, that lies to us again and again that economic growth and investments trickles down, while people continue to be disowned from their lands, livelihoods and lives. 

Share this Post :