Category: Uncategorized
Posted: August 25th, 2022
June marked the end of a strong quarter for the real estate sector that saw improved performance across the industry.
Demand for office space in the Nairobi Metropolitan Area continued to rise, with a high-level analysis of the key nodes of Westlands, Kilimani, and the CBD by NW Realite showing a return to almost pre-pandemic occupancy levels. This has seen an increase in investor confidence in the office sector, resulting in the resumption of investment activities. In June, property developer, Purple Dot International commenced construction of a 14-floor commercial building along Mombasa Road. Comprising 11 floors of office space, the development is expected to be constructed in approximately 28 months. It is designed with environmentally sustainable features including energy and water-saving measures such as solar photovoltaics, energy-saving lighting, and flow faucets.
Business process outsourcing firmCCI Global also commenced the construction of its new office complex in Tatu City which will host a 4000-seater contact center, the largest such facility in the country. As covered in our May issue, CCI has contracted real estate firm Gateway Real Estate Africa (GREA) to undertake the development to CCI’s specifications. GREA also announced plans to build a second office and retail center in Tatu City that is expected to host its regional headquarters once complete.
In the residential sector, increased activity was witnessed in the affordable housing segment as firms move to bridge the demand for affordable housing units, estimated at 2 million units. In the month of June, Safaricom Investment Co-operative kickstarted construction of Miran Residence, a low-cost mixed-use development project sitting on a 3-acre parcel of land in Ruaka, Kiambu County. The project is expected to be completed in June 2024 and will add 450 low-cost housing units in the market comprising studio units going for Kshs. 2.75 mn, studio lofts at Kshs. 3.9mn,1-bedroom apartments at Kshs. 4.45mm and and 2-bedroom apartments at Ksh. 5.90mn. In the same vein, the Nairobi Metropolitan services announced that it was in the final stages of identifying potential partners for the redevelopment of county-owned estates under the affordable housing initiative.
The upturn in the hospitality industry also continued to gather pace and is attracting international interest, with a report by hospitality advisory indicating that twenty-four global hotel brands are constructing or planning to construct new luxury hotels in the country. This comes as the industry continues to recover on the back of the easing of travel restrictions. The new facilities will add an estimated 3,155 hotel rooms to the market and put Kenya among the top seven countries hosting luxury hotels under development in Africa, alongside Egypt, Morocco, Nigeria, Ethiopia, Cape Verde, and Algeria.
SUMMARY & OUTLOOK
We expect the improved performance witnessed in Q1 and Q2 2022 to continue into Q3, resulting in increased building and construction activities. According to the Central Bank of Kenya’s(CBK)Quarterly Economic Review Q1 2022 report, gross loans advanced to the building and construction sector increased from Ksh. 128 bn in Q4 2021 to Ksh. 138 bn in Q1 2022, signifying the increased investment activities in the sector.
We expect to see further investment activities in the office sector with a focus on Grade A offices in master-planned developments such as Tatu City as investors seek to take advantage of well-planned controlled environments, shared amenities that reduce development costs, and a ready market from residents and businesses in the master-planned developments. In the residential sector, the affordable housing segment is expected to continue witnessing increased activities from private developers as well as government-backed initiatives. An upsurge in MICE(meetings, incentives, conferences, and exhibitions) activities is expected to cushion the hospitality industry and drive performance improvements. In addition, the sector can benefit from increased activities that boost tourism, such as the World Rally Championship event which saw hotels and serviced apartments in Naivasha record full occupancies for the duration of the event.
Despite these positive trends in performance, the sector continues to grapple with a myriad of challenges occasioned by the harsh operating environment, inflation and high costs of living that have lowered disposable incomes and reduced consumers’ purchasing power. This is partly evidenced by the 5.6%-increase in gross non-performing loans in the real estate sector to ksh. 78.5bn, according to the CBK’sQ1 2022 Quarterly Economic Review.
Category: Uncategorized
Posted: July 12th, 2021
Latest figures from the Kenya National Bureau of Statistics, covering July to September 2018, indicate that the property sector posted a growth of 5.8 per cent – its slowest rate since the 5.4 per cent recorded in the last quarter of 2014. During this quarter, sluggish demand forced some builders to offer huge promotions to entice buyers, including freebies and lower down payments. Interestingly, some developers slashed prices as much as 20 per cent, angering earlier buyers who paid higher prices.
Market pundits blame the slowdown on low access to credit, uncertainties in building approval laws, and a weakening purchasing power among potential buyers. “Demand is both constrained by oversupply in some segments and also due to would-be-buyers experiencing very limited access to credit,” Johnson Denge, whose company is undertaking real estate developments countrywide, said the market is experiencing an oversupply in the high end market segment, adding that developers must now look at new pockets of value to survive. “We have seen oversupply in areas such as office space, upper-limit residentials in select markets and also in retail space… Demand has slowed down and developers will have to look for new pockets of value, especially in the lower end of the market.”
Mr Ndege’s sentiments concur to those of Jared Osoro, the director of research and policy at Kenya Bankers Association, who says subdued demand for housing among the middle-and high income earners has made it difficult for investors to repay their bank loans. “The situation reflects subdued demand on the back of continued investments in the housing market, which remained skewed in favour of the middle and high-income bracket,” Mr Osoro said in a recent interview.
The Central Bank of Kenya’s Quarterly Economic Review released last month shows that real estate recorded the highest growth in non-performing loans in three months ended June, a situation that has seen a spike in the asset seizures by aggressive lenders. Non-performing loans in the sector rose by Sh6.1 billion, or 15.8 percent in April-June to Sh44.4 billion compared to the previous quarter as developers outpaced manufacturers (11.7 percent) and traders (7.3 percent) in growth of default on loans, the CBK said. This means that 11.3 percent of the Sh392.7 billion gross loans extended to investors in land and houses by commercial banks over the years were not being serviced as at the end of June.
A loan is considered non-performing if it remains unserviced for more than three months. As a result of financial difficulties, many investors have lost their properties to creditors – leading to an increase in number of repossessed homes that are being sold off cheaply across the country. The slowdown has negatively impacted the local construction industry where cement consumption for the 10 months to October 2018 declined 6.4 per cent to 4.129 million metric tonnes compared to a similar period in 2017.