Corona jitters hit construction sector
Thursday, March 26th, 2020
Wahinya Henry and Milliam Murigi
The outbreak of coronavirus disease (Covid-19) has sent anxiety among investors in the local construction sector.
Reports indicate that production lines in China where the first case was reported have been at a standstill due to quarantined workers.
“It’s reasonable to consider supply chain interruptions as a result of proactive measures in mainland China.
It’s also logical to anticipate supply delays,” say Masinde Muliro University of Science and Technology real estate consultant, Dr Obadiah Kipng’etich.
He says restriction on movement and a reduction of passengers public vehicles are allowed to carry is causing delays in construction workers’ movement.
“If public transport halts, many workers may find it difficult or impossible to show up for work on time – or at all,” says Thika-based real estate investor, Dominic Chege, whose project in Makongeni estate has stopped because of diminishing availability of workers who have opted to stay home.
Players in the sector expect more construction site closures going forward. “We anticipate uncertainty in the market over the next one month,” says Mizizi Africa Finance and Operations Director, George Mburu.
“We are likely to see a general slowdown in construction activities over the next few months as players comply with the directive to observe social distancing.
Project completion deadlines could be affected. Visits to construction sites will also be limited after movement restrictions,” says Mburu.
And as the Covid-19 pandemic escalates, the real estate sector has just seen the beginning of what could become a long, winding challenge.
Worse, if regions are locked down and residents quarantined, all construction in the country will have to cease.
Already, companies that do business with Chinese companies by procuring raw and other construction materials are feeling the heat.
Four Chinese cargo ships that supply goods from China have failed to dock at Mombasa for the second month in a row following the outbreak of the virus, says Kenya Ports Authority managing director Daniel Manduku.
Cytonn Real Estate CEO Edwin Dande says, the industry is facing delays in equipment delivery that will cause a sector slowdown.
He foresees delayed payments and decision making, especially from Chinese affiliated projects.
“There are also delays in payments from clients and businesses that are affected by the slowdown in economic activity and reduced funding from financial institutions,” he adds.
Mburu anticipate mild effects on installment payments as customers shift focus on preventive measures; purchase of food and stocking up hygiene products.
“However, the situation will be corrected partly by commercial banks resolve to restructure loans, extending repayment periods for credit facilities and waiving of transaction charges,” he says.
The disease has paralysed production globally, with the Kenya Private Sector Alliance (Kepsa) saying Kenyan firms and others in the region are already experiencing a hit from the outbreak.
The alliance says China has become the biggest source market for many African companies due to the low-cost production, which has made it possible for these companies to procure goods affordably.
“The construction sector is among the hardest hit at 70 per cent as the coronavirus continues on its rampage worldwide,” Kepsa said in an economic status report on the impact of the virus.
The report said industries that depend on imported raw materials, intermediate and capital goods from the affected regions will be hard hit.
These include manufacturers, construction and infrastructure developers among others.
“In addition, public and private projects being implemented by foreign companies or that rely on expertise from affected countries may also suffer slow progress,” said Kepsa.
George Wachiuri, Optiven real estate founder and CEO says the country has already started experiencing low uptake because of the challenges facing America and European markets.
This will result to lower diaspora remittance from the Sh250 billion expected in 2020 to lower amounts. Real estate enjoys about 30 per cent of diaspora remittance.
He foresees a crisis in lower rental collections and stalled projects. “Real estate firms will be driven to their knees as they grapple with loan obligations and other costs,” he says.
The closure of Land registries has been the most painful nail to the entire real estate industry.
“This is because even if you are still conducting your business online you have to wait until the office reopens to get the most crucial documents,” says Wachiuri.
Optiven Real will be leveraging on technology to continue conducting its land selling business.
Through their Optivenapp, customers can access different projects the firm is offering from their homes.
“With our mobile application, customers can view, get pin for site visit and are able to see what is available.
Virtual reality and virtual tours continue to provide a way for buyers to continue with their property search from their homes,” says Wachiuri.
He says use of technology is the way forward for all real estate companies with or without Covid-19.
This is because technology will help to keep transactions moving as more people are now conducting their businesses online. It will also help to attract more investors from abroad.
Hope despite pandemic
Not all is gloom. “We are not expecting the slow-down to last long. The rise in momentum and growth in interest on off-plan units experienced in January and February will be sustained in a bounce back upon containment of the pandemic,” says Mburu.
He says involving prospective buyers in the entire construction process, eliminating the risk of missed timelines in project completion and building customer confidence should be a priority in the industry..
Property sellers are also controlling customers’ physical site visit numbers and exploring delivery of construction updates digitally.
“We are exploring use of virtual tours to help clients make informed decisions using videos,” Mburu says.
Meanwhile, the Architectural Association of Kenya (AAK) is holding its annual general meeting online this week, making it one of the first Kenyan organisations to scrap plans for an in-person AGM.
“Due to the situation caused by Covid-19 and the association’s commitment to the health and safety of its members, AAK AGM will be a digital event that will be hosted virtually on Zoom,” AAK said in a statement.