World Bank values Dar's real estate at $12 billion, Nairobi has more returns though

Dar es Salaam’s real estate was ranked ahead of Nairobi and Addis Ababa’s, the two economic powerhouses in the region.

The report, which was released yesterday, estimates the economic value of Dar’s real estate at Sh1.2 trillion ($12 billion) ahead of Nairobi’s Sh927 billion ($9 billion) – a Sh273 billion gap.

Ethiopian capital Addis Ababa comes in third at $6 billion (Sh618 billion), while Kigali (Rwanda) is fourth at $2 billion.

Uganda and Burundi were not included in the study which cites land fragmentation and weak property rights as the sector’s biggest impediments in Africa.

The World Bank report, however, says Nairobi has an edge over Dar es Salaam since it has the highest replacement value for its built-up area and built-floor area ahead of Dar, Addis Ababa and Kigali, even as it lags the global standards.

“Our analysis of imagery from satellites and geographic information systems (GIS) confirms that in African cities, capital investment not only appears low near the urban core, but rapidly declines outside it.”

Experts further added that despite office space charges being higher in Dar at an average of $22 per square metre compared to Nairobi’s $12 – $14, rents have been falling in Dar even as growth remains steady in Nairobi, making the Kenyan capital more lucrative in terms of return on investment.

Just like in Ethiopia majority of new buildings in Tanzania are also government-funded while Kenya’s is private sector-driven making them hard to generate returns in the near term since they are occupied by parastatals and government departments.

“At the end of the day, it doesn’t matter how much it costs to construct a building but how much returns it generates,”Ben Woodhams, the managing director of Knight Frank – a property firm with a footprint in Kenya and Tanzania told a local business paper.

Dar, Addis and Nairobi however have a low economic/replacement values compared to cities with similar income levels according to the same World Bank report.

“The low economic value comes from the way land is organised – in small fragments – reducing the scope to scale up investment in housing and commercial complexes. Small scale urban development increases cost of construction and makes it costly to lay down supporting services and infrastructure,” Somik Lall of the World Bank said.

The report suggested Nairobi and Dar should co-ordinate land and transport development in order to create value.

Property development has more recently been seen as a safe investment bet in Kenya, making it a popular cash-generating option for investors.

The shine on Kenya’s property market has in recent years pulled in multinationals in droves, especially Chinese firms that now dominate the construction sector.

“The urbanisation of people has not been accompanied by the urbanisation of capital. This manifests itself into cities not being able to fully tap into their economic potential. We use various metrics to make this point, including some new analysis based on calculating the replacement value of building stock in the city,” the study says.