Property prices in Nairobi and elsewhere in Kenya have skyrocketed in the past few years, partly because more money may be finding its way there from pirate activities in neighboring Somalia. A local analyst says buying property is a popular and easy form of money laundering in Kenya.
According to real estate agents in Nairobi, property prices in many neighborhoods in the capital have doubled, and in some cases tripled, since 2006. They say the situation is the same in the coastal city of Mombasa, where new residential and commercial buildings are being sold for unprecedented prices, even before the buildings are completed.
A survey of property prices in Nairobi shows prices here have climbed not only in upscale areas, but in low-income areas as well. That has kept land, houses, and even the most basic of apartments unaffordable for many Kenyans.
Economists say the current property bubble can be attributed, in part, to the decision of local city councils to change the status of some streets and neighborhoods from residential to commercial. Developers have bought up single-family estates at premium rates to make room for apartment buildings, offices, and shopping malls.
Another reason for the property boom is linked to overseas Kenyans, including Kenyan Somalis, who are using the money they have earned outside the country in recent years to invest in property at home. Businessmen from Somalia, Congo Kinshasa, and Burundi are also said to be buying property in Kenya as long-term investments.
A Mombasa-based architect, Ayub Mwangi, says Somali nationals have acquired numerous properties there in recent years, sometimes paying as much as 50 percent or more above the asking price.
"A plot that was costing 30 million [Kenyan shillings $360,00] is now costing about 60 to 70 million [$860,000]. They seem to have a lot of money to spend," he said.
An analyst on Kenyan economics and public policy, Robert Shaw, says a large chunk of the money used to buy property in Kenya these days is believed to be a part of the millions of dollars in ransom ship owners have paid to Somali pirates.
In 2008 alone, pirates seized 42 vessels and their crew in the Gulf of Aden and the Indian Ocean, possibly earning as much as $150 million.
"One should be cautious unless one has direct facts," said Shaw. "But one way to look at it is to look at some of the areas which would be potentially attractive to Somalis and Eastleigh is one. Eastleigh now has a property price tag on it that is way higher than some neighboring areas."
The Somali community of Eastleigh in Nairobi is one of the fastest-growing communities in the capital. International law enforcement officials believe pirates are using Eastleigh's cash-based money transfer network to launder at least a part of the ransom money here.
The officials believe drug traffickers, who launder an estimated $100 million through Kenya's financial system every year, are also heavily invested in Kenya's property market.
Shaw says Kenya has become a major money-laundering hub because it is easier to do it here than in many other places.
"There are two factors. One is that we still do not have in place an anti-money laundering legislation," he said. "And secondly, the government's stand on corruption is very weak."
Last April, Kenya's parliament put forth a bill to combat money laundering, but it has yet to be enacted into law.