Thousands of articles have been written about it, tens of forums held to discuss it, and now a study has been done on it. Nairobis property market margins are the fastest growing, not just in Kenya, or East Africa, or Africa, but in the whole world. And following closely is the coastal town of Mombasa, whose margins were voted as the second highest in the luxury property segment of the Knight Frank Prime International Residential Index (PIRI) Market prices in the luxury neighbourhood and housing developments of the two cities rose by 25 and 20 per cent respectively last year to lead the pack, according to the study, titled Wealth Report 2012: A Global Perspective on Prime Property and Wealth. Property prices here defied last years erratic lending rates to increase by double-digits, earning the two towns the first and second positions respectively out of the 71 cities surveyed globally. Mr Liam Bailey, head of residential research at Knight Frank, says the survey should offer investors some food for thought as it is so far the worlds most comprehensive analysis of the luxury residential price trends encompassing more than 80 locations in 40 countries and reflecting a growing need to think internationally. Worth noting is that the gap in annual price growth between the best and worst performing luxury residential markets was 45 per cent, with most of the locations covered in the survey experiencing flat or falling prices. Ironically, some of the largest price drops were in areas with the strongest economic growth, including most European countries. Nairobi and Mombasa were the only cities in the developing countries that recorded massive property price increases, and this, according to Daniel Ojijo, chief executive officer of Mentor Group Holdings, is not surprising. Nairobi is a strategic town in the entire continent and in the world in terms of logistics. This easily attracts investors with property interests from across the world, says Mr Ojijo, adding that in the recent past, Kenya has been receiving a lot of remittances from the diaspora, which have also significantly led to the increase in property investments. Cheaper land Despite the increase in the cost of luxury property, the report indicates that buying a metre of land in Nairobi and Mombasa is still cheaper than in other cities, such as Monaco. Of the 71 cities included in the report, with respect to property prices, a square metre in Nairobi costs $1,700 (Sh141,000), barely three per cent of the $58,300 (Sh4.8 million) that a buyer would have to pay in Monaco. The Wealth Report explains that tried-and-tested markets with security of infrastructure and political and legal stability will outperform others in the long-term. Political and security concerns are also assuming a more critical relevance for purchasers. These have occurred most recently in the Middle East, but also in Asia Bangkok suffered in 2010 from political instability and this had a dramatic impact on the level of foreign investment. As wealth creation and luxury property markets become more global, so do the issues of exchange rate volatility, political risk, and security concerns. This has led to the hand-in-hand growth of capital flight and the concept of the safe-haven location. Mombasa and Nairobi, therefore, may not sustain these impressive figures in the long term due to security concerns and uncertainty over lending rates. Last year, the country saw a surge in interest rates after the Central Bank increased its base lending rate from six per cent to 18 per cent in the last quarter. This prompted commercial banks to increase their average base rate to about 25 per cent. The global report notes that the startling performance at the top-end of Kenyas housing market is particularly interesting. Price growth in both Kenyas capital city and the countrys Indian Ocean hot spots outstripped all other 71 Prime International Residential Index locations. Miami was third at 19.1 per cent, Bali (15 per cent), Jakarta (14.3 per cent), London (12.1 per cent), Vancouver (10.4 per cent), Moscow (9.8 per cent), Toronto (8.5 per cent), and Beijing (8.1 per cent). Mr Ojijo says the rental income of the city has been competitive over the past few years and is on a growth trajectory. Rental income has increased significantly in the past few years, and this automatically has buoyed investment in the property sector, says Mr Ojijo. I am not surprised at all by the findings of this report. In fact, the growth is projected to get even steeper. The fact that an investor can hope to get between Sh400,000 and Sh500,000 a month as rental income from a single housing unit in, say, Runda means that Nairobi is now competing with other global big cities in this sector. Strategic hub Mr Kwame Owino, the chief executive officer of the Institute of Economic Affairs, agrees, adding that Nairobi has become a strategic commercial hub. Nairobi continues to be the choice of investors when they want to invest in the continent and this comes with the need to have luxury residential housing for the high net worth investors, says Mr Owino. Mr Gerishon Ikiara, a development and policy economist and lecturer at the University of Nairobis Institute of International Relations, explained that Kenya has been experiencing an exponential growth of the middle and upper class segments of the society, and that this has led to a huge demand for property. The country has seen the doubling of the countrys GDP from $15 billion to $35 billion, thereby creating a bubbling middle and upper income group with a veritable itch to invest, says Mr Ikiara. Mr Owino, however, notes that the rise of prices in the luxury property is a clear indication that the gap between the rich and the poor is growing fast. The fact that this growth is concentrated in the up-scale market is indicative of huge inequalities in terms of incomes, and proves that the gap between the rich and the poor is widening, he says. Mr Ikiara says ongoing infrastructure developments across the country are also spurring global interest in Kenya because investors put their money where they see good signs of staggering returns. Many investors seem to be confident that Kenya is on the right track and therefore would not fear to invest here, says Mr Ikiara. As for the changing fortunes of Mombasa, Mr Ojijo explains that the coastal region is blessed with a conducive climate, sandy beaches, and general tropical weather that is the envy of many other cities, and that any person who has the money and wants a home that will spoil them with comfort would be inclined to invest in the city. Mombasa is still the undiscovered gem, says Mr Ojijo. This reports vindicates that. The report placed Nairobi and Mombasa in the safe haven category, which indicates that these are the best places for investors to put their money. Nairobi and Mombasa have been voted the worlds most promising investment hubs for property developers following massive returns from rentals and sales registered in 2011. This means that investors should look forward to even steeper profit margins The implications of such categorisation may not mean much to a casual observer, but for Kenya they mean everything. The worlds perception of the country hit record lows following the political violence of 2007/08, and it is only now that investors have started trooping back to the haven. Mr Ben Woodhams, managing director of Knight Frank Kenya, says that safe haven is not necessarily a phrase many people would use to describe Kenya within a global context, but compared with many of its neighbours, the country is just that. Of all the luxury market trends that have played out since the launch of The Wealth Report five years ago, it is the growth of global wealth flows that has done most to shape the leading prime markets.