Is there a housing bubble in Kenya?

I have been following the housing market in Kenya for the last several years and I have noticed something phenomenal; prices have been going up and up like crazy. At first, I attributed this to the fact that the expanding middle class high demand for safer neighboorhoods. As one can imagine, Kenya's capital city did not get nicknamed Nairobbery by accident, crime is a major factor people's choices especially when they can afford to choose. That's why safe neighboorhoods in developing countries like Kenya often cost more than similar homes in developed countries since its tougher to get into these safer neighboorhoods.

Another justification for the runup in housing prices is the nortion that Kenya's economy had been curtailed during the Moi regime of the 80s and 90s, and that with the opening up of the economy since 2002, the housing market is just correcting itself to where it ought to have been so many years ago. Its like a spring that had been held down with the weight of corruption finally violently springing up to take its natural position. This argument is bolstered by statistics which indicate that the economy expanded very fast after 2002, bringing in new and vibrant middleclass.

The other popular explanation is that remitance from the Kenyans in the diaspora is responsible for the rise in housing prices. Indeed the diasporan Kenyan pollulation in the West and the rest of the world has vastly expanded and is also responsible for a huge chunk of Kenya's foreign exchange. Most of these diasporans dream of returning to Kenya someday so they've been heavily involved in the housing industry as willing buyers.

How about the role of the banking industry? During the heydays of the cheap money, alot of Kenyan banks loaned easy money to lots of customers without requiring any collateral other than their income slips. Infact, some banks were even peddling loans on the streets!! Some of these cheap money surely ended up in the housing market.

Finally there is speculation that there is some form of money laundering involvement with the housing industry. Everyone is now familiar with the Somali pirates who terorised ships along the Indian Ocean. Well, most of the ransom paid found its way into Kenya and it is suspected that alot of that money went into the housing market as these newly mited millionaires went into buying sprees. Kenya is also a notorious cunduit for illicit drugs bound for Europe and Asia and it is suspected that some of that drug money end up being laundered in Kenya through housing industry.

But how much of the runup of the housing prices can be attributed to all these phenomenons, if at all? And is there a housing bubble in Kenya? That's what this blog seeks to answer. Watch this space.