Gloomy economic prospects worry real estate players

Friday, January 10th, 2020 00:00 |
An apartment block in Naka Estate in Nakuru town. Photo/PD/JOHN OCHIENG

Rapid urbanisation, an expanding middle class with increased purchasing power due to higher net disposable income and rapid population growth rates are some of the factors that players hope will shore up the real estate sector this year.

This is in addition to the repealing of the interest rate cap last year which Beatrice Mwangi, a research analyst at Cytonn Real Estate,  expects to stimulate the credit environment and the overall economy and spur growth in the building and construction industry.

Mwangi, who spoke to Boma, said other factors that will drive the sector include increased traction in mortgage market with the launch of the Kenya Mortgage Refinancing Company (KMRC) in 2019, continued national Government support for the affordable housing initiative and the entry of multinational corporations and retailers into the country. 

Affordable housing 

Developers say they are hoping to cash in on the affordable housing deficit growing at more than 300,000 homes a year and support from the State which is keen to boost the Affordable Housing addenda, one of the Jubilee government’s Big Four agenda.

“The affordable housing deficit is bigger than the government can supply and it’s growing,” says Kamau Yusuf, a property dealer in Juja, Kiambu county.

He says there is ample scope for private developers to provide affordable housing using cost-efficient technologies.

“The government has already removed VAT from materials for use in providing affordable housing with effect from November 17, 2019. This is a big incentive that the sector should capitalise on,” says Yusuf.  


Cytonn Investments CEO Edwin Dande (second right) and Kiambu deputy governor James Nyoro (centre) welcome former Prime Minister Raila Odinga during the official opening of the firm’s Alma housing project in Kiambu county last year. 

According to Mwangi, sustained infrastructural development by the government will boost the country’s economic growth and open up more areas for development, are additional crucial factors that will come into play to boost the sectors growth.

“Despite this, the sector is expected to be constrained by delay in processing of construction permits by county governments, and oversupply in select sectors such as commercial office, retail and middle- high end residential sectors,” says Mwangi.

Delays in the processing of building permits by some county governments was a major setback for private developers in 2019.

It resulted in prolonged project implementation timelines, ultimately hurting the ease of doing business. 

Ideally, Mwangi says, the process should take approximately 30 days, but currently it could take up to two years, with delays mainly caused by the frequent downtimes and delays in processing of applications. 

“This can for instance be resolved through development of a one-stop centre that integrates the procedures and standards for development control.

The office can also subsume all agencies involved in issuance of building permits and planning approvals in addition to having the e-construction systems ran efficiently.

Unless this is done, the delays will continue crippling the real estate sector in 2020,” she told Boma. 

Mwangi said the sector was set to reap dividends from the repealing of the interest cap with increased private sector lending as gradually, borrowers will be able to access housing finance as banks increase credit advancement to the private sector, therefore stimulating the mortgage market. 

Office space glut

And with commercial banks unshackled from the interest rate cap, the anticipated economic expansion and stabilising of the private sector will lead to steady economic growth, leading to stable property prices.

“As developers anticipate increased end buyers, we expect that prices will pick up especially in markets where they have stagnated,” she said. 

Actual property uptake is expected to remain stagnant in the short-term, improving once the financial environment normalises.

And while real estate activity will remain slow in oversupplied areas such as offices and retail space, construction will increase towards sectors such as affordable housing, mixed-use developments, site and service schemes.

Last year, the real estate sector average total returns came in at nine per cent,   Cytonn Real Estate, the development affiliate of Cytonn Investments says in their just released Annual Real Estate Market Review for 2019.

Commercial office, retail, residential, mixed-use developments, and serviced apartments sectors posting average rental yields of 7.5 per cent, 7.8 per cent, five per cent, 7.3 per cent and 7.6 per cent, respectively, while capital appreciation for existing properties stood at two per cent. 

This was in comparison to 2018, when the sector recorded subdued growth attributed to sluggish demand for property owing to the prevailing tough operating environment that resulted in constrained access to funding for both developers and off-takers. 

Another challenge was delayed issuance of construction permits and oversupply in commercial office and retail space. 

 Peter Nyaga—CEO Mahiga Homes, says  2019 was slow because of lack of  disposable incomes for people to invest in housing, mainly due to demonitisation and interest rate cap, which affected access toloans.

“Banks were strict, asking for a lot of collaterals which people did not have. But with the repeal, they are self-regulating, meaning they have something to cover up in case customers default,” he says. 

Agricultural land

Anthony  Mugo, a director at  Exurbia, property dealers, says  their biggest challenges have been pricing and the lethargy at Land Registry. “Investors have problems putting up agricultural infrastructure such as boreholes and cold rooms until they are registered owners,” regrets Mugo.

He says agricultural land should be cheaper than residential land. “We are focused on the long term partnership in food production with the investors,” he adds. 

Analysts say the economy is likely to to reman subdued this year. The country recorded slower levels of economic growth last year, averaging 5.4 per cent  for the first three quarters of 2019, compared to an average of six per cent  in a similar period in 2018, according to Edwin Dande, CEO Cytonn Investments.  

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