Covid-19 causes unprecedented pause in Kisumu’s real estate market

Friday, August 28th, 2020 00:00 | By
Recently built residential apartments at Riat Hills in Kisumu. Photo/PD/NOVEN OWITI

The prolonged impact of the pandemic on real estate business has resulted in a sharp fall in property prices in Kisumu town.

Notably, the lakeside town is registering low demand for property, especially residential houses and land in the past few months.

This is characterised by ripple effects  of the coronavirus on industry’s activities and overall economy, which has contributed to falling disposable income in a majority of households.

Players view the radical shift in market performance as unprecedented times for the sector even as they put a brave face for a gradual recovery in the coming days. 

Bedvin Property Limited director Benard Odhiambo says a general reduction in property demand is being experienced across the market niche.

He says most home buyers are skeptical about the economy and have put their buying plans on hold hoping things will soon look up.

Property price reduction has gone as low as 30 per cent in just three months, which Odhiambo terms as alarming. 

“Developers have been forced to reduce prices on both high-end and middle-level properties in Kisumu town and the surrounding areas to attract buyers,” he adds.

Focus on peri-urban areas

However, land values within areas bordering the CBD remain constant as buyers opt for purchases in the peri-urban vicinities.

Consequently, the demand for land in the outskirt is rising gradually as prospective buyers lineup for purchases. 

“People are focusing on buying land in the rural and peri-urban areas whose prices are still considerably low, below Sh500, 000,” Odhiambo explains.

In the housing segment, there is a low uptake of investment. A few buyers are keen on acquiring homes, especially in the high-end and middle-class residential areas for economic reasons.

For the high-end dwellings such as Millimani Estate that were being listed at Sh50 million, owners are now willing to take as low as Sh30 million.

In the middle-class setup, a four-bedroom apartment in Riat Hills Estate that late last year was listed at Sh9.8 million now costs about Sh7million.

Odhiambo attributes the scenario to poor economic performance and dwindling asset financing opportunities by financial institutions to real estate sector.

The proprietor says most banks are uneasy with financing industry projects owing to current uncertainty in the economy and, apparently, they are preserving cash and liquidity for the long term objective.

He states that lenders are playing safe in the wake of the pandemic effects on the economy. 

“Not many people are buying houses due to lack of financing by the banks. It seems financial institutions are more reserved in financing mortgages, thus slowing down investment in this segment,” explains Odhiambo.

As for affordable low-end houses, there is a significant demand despite a decline in supply.

Homes that range between Sh3 to Sh4.5million are registering high enquiries.

Cash market

Generally, land prices and demand has also dipped in Kisumu town and its environs in recent times, followed by a fall in speculation. Speculation in land value is considered a driver to its demand.

Lake Estate Agency Limited director Nishma Karia says due to the current state of affairs, property buying has become a cash market with developers fearing the risk of taking loans because of the economic uncertainty caused by the pandemic. 

“Sustainability in repaying loans could be a major challenge for most people who are not sure of their future in the workforce,” she says.

She points out that the current market outlook is a perfect opportunity for shrewd investors to buy properties and later make profits in re-sale. 

“It is a good time to buy because people are willing to sell properties at reduced prices.

Investors can take advantage of the situation to obtain property, which is going at affordable costs,” says Nishma.

According to the proprietor, developers who capitalise on the situation are deemed to prosper because they will buy at cheap prices and end up selling at higher prices when the property value appreciates after the pandemic. 

“We foresee a situation where the sector will remain a buyers’ market if the virus spread continues to escalate,” she adds.

Consequently, she says low enquiries have being recorded over the past few months. 

“We used to get up to 10 enquiries in a day, but the number hardly goes beyond four currently.

There are days we don’t record any property enquiry at all,” she adds.

Reduce rental rates

A slowdown in business has also thrown the rental market into devastation. As a result, several Non-governmental organisations that had rented out offices are vacating the properties as they contemplate on going back to their home countries for safety purposes.

Therefore, Nishma says many properties have been left vacant. 

The realtor roots for the structuring of property letting to fit the affordability of clients. 

For instance, she says developers can opt to reduce rental rates and cut down their budget to accommodate their clientele amidst downscale of businesses.

Odhiambo on the other hand, predicts that the Kisumu property market may experience a slow recovery post-Covid-19 as uptake will be subdued due to depressed income levels and changed priorities by prospective investors.

He recommends that financial institutions double their support for the industry by financing more real estate deals, especially affordable housing to catalyse growth.

Cash flow issues

A recent report by Cytonn Investments for July indicates there was low spending by property buyers and renters in the face of the Covid-19 pandemic effects.

The study revealed that buyers and tenants had limited funds to spend on their monthly housing costs, thus a decline in effective housing demand leading to lower home prices and lower market rents.

It further showed that most home buyers were skeptical about the market and had put their buying plans on hold.

Consequently, developers were experiencing cash flow issues as a result of buyers holding back on their pending instalments.

Besides, there was a large drop in new property sales.

According to the study, banks were also hesitant in disbursing new loans hence a decline in mortgage uptake by home buyers. They had also tightened their lending conditions.

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