Real estate recovers slowly  as infrastructure bolsters growth in the sector

Year 2022 gave some rays of hope to the real estate sector that has been on an ascendingtrajectory, albeit slow, since the onset of Covid-19 in 2019.

Industry players put up a brave face and in spite of numerous challenges, the electioneering year stood in sharp contrast to the preceding years, when the scourge of Covid-19 was still rife.

A section of developers say that the year witnessed cash-rich buyers gradually returning to the market with lower costs of borrowing, demand for decent housing and infrastructural development taking the lion share of what contributed to the sector’s growth, albeit sluggish.

A report by Knight Frank LLP, a leading independent global property consultancy indicates that the overall real estate sector which has been on recovery mode as effects of the pandemic wear off, has taken a hit on the regulatory front, with the reinstatement of building levies that were scrapped in 2017, such as the construction levy and Environment Impact Assessment license fees.

Most Kenyans, the report cites, have been demanding for environmentally friendly features in office buildings as multinational corporations expanding into Kenya are accelerating investors’ shift towards incorporating sustainable design in their developments.

The report indicates that there is an attractive investment opportunity in technology-specific workplaces to international standards, with Kenya’s growing digital industry and interest by technology giants.

During the first half of 2022, the report by the consultancy firm states that prime residential rents continued the decline, dropping by 2.23 percent compared to 1.58 percent over the same period in 2021.

“This is attributed to the continued oversupply and effects of the continued rise in cost of living. The market remains a tenant’s market, implying that landlords will continue to provide various concessions in an effort to have high occupancies,” the report read in sections.

On the sale front, prime residential sale prices improved marginally by 1.2 percent in the first half of 2022.

“This was mainly attributable to the reopening of the economy after the pandemic. Though positive, it had declined from the 2.4 percent increase during the first six months to Q1 2022, which was mainly as a result of the slowdown of the economy towards the end of the H1 2022, due to the August general elections,” the report further read.

Most investors, the report cited diversified into less traditional asset classes, away from those that are currently oversupplied to those that are more resilient.

“This has seen adoption of real estate assets such as purpose-built student accommodation, modern warehouses and industrial parks,” the report indicates.

According to Kenyans who are purchasing land for the first time, the country’s infrastructure sector has played a major role in realising the real estate sector’s goals.

John Mwangi who is building his first house at remote Ngoliba village in Thika, Kiambu County says that increased accessibility of rural areas and provision of key amenities are great enablers of rekindling the sector.

“I am building a bungalow here, but I can assure you if it were not for the roads, electricity and water supply that are already on site, I would have put my investment elsewhere. The government has commendably supported real estate and this is encouraging,” said Mwangi.

Builders particularly hailed the government for increasing the infrastructure sector’s budgetary allocations whose projects have improved connectivity thereby boosting the sector automatically with optimised remote land enquiries. 

Nevertheless, some developers further blamed the slow rise of the sector to poor cost of doing businesses, reduced cash flows, numerous bureaucracies in diaspora remittances and ineffective public-private partnerships that would have accelerated construction activities.

Mizizi Africa Homes CEO George Mburu avers that rising input costs have put a question mark over the feasibility of the business in a price-sensitive market.

Despite the sector having created unique opportunities, many developers, he said, are facing a tough situation in terms of sales and overall returns, a state of affairs he expressed optimism could turn around in the year 2023.

“Considering that 2022 was an election year, we cannot complain so much despite the many challenges we have faced. It was a year of sustained recovery from Covid-19 and this implies that cash flow was still a challenge to many as it hit all the global markets,” said Mburu.

Construction materials

To help the sector rise, the CEO rooted for effective government-private sector partnership in various areas such as subsidising the cost of building materials to make them affordable, incentives, recognition of private developers as key players and joint construction activities.

The price of key construction materials shot up due to local shortage, prompting industry groups and contractors to warn of a slowdown in the sector which in turn increased the cost of acquiring new homes.

According to the Architectural Association of Kenya, an assessment of the market trends showed that construction materials increased by up to 40 percent since last year.

Shortage of construction materials locally was also worsened by supply fears related to Russia’s attack on Ukraine but with improved partnerships, developers expressed hope that the sector could experience a rebirth.

“The government should recognise local private developers who play a very key role in ensuring Kenya gets closer to achieving its affordable housing goal. If the private sector can be satisfactorily motivated, we expect acceleration in construction activities which is the desire of the government,” added Mburu.

His sentiments were echoed by Ken Wamburu, the CEO in charge of Imara Land Investment Ltd and who decried that being an electioneering year, most developers did not achieve their annual construction and sale goals.

“Things are changing for the better especially after Kenyans conducted peaceful elections. The business is sprouting and as we usher in a new year, we are overly optimistic that normalcy will resume,” said Wamburu.

The developer urged Kenyans to make good use of available cheap loans and mortgages to facilitate achievement of the home-owning dreams and land ownership.

“We have very friendly policies including our land payment methods that allow instalment plans. Every Kenyan should take up the challenge and get their land-owning dreams closer. We now have hustler funds and other cheap loans which makes the journey of investment even easier,” stated Wamburu.

Tremendous growth

On his part, Peter Karoki, the Managing Director for Lifestyle Heights noted that Kenyans have developed the desire to own homes, a move that has increased their sales in 2022.

“Like in 2020 and 2021 when Covid-19 was still widespread, we have continued to make tremendous growth in terms of sales and profits. Kenyans no longer have issues with accessing credit and with this, we have seen them seek to move out of rental houses for better lives,” noted Karoki.

“Most of them are moving away from the busy Nairobi city to more serene and tranquil areas such as greenery parts of Ruiru. From the lessons learnt during the Covid-19 period, most people appreciate that living in their own compounds with their families is the way to go,” added Karoki.

Njinji Murigi, a developer and urban planner says that 2022 has been the worst year as the sector experienced the all-time high increase in construction materials such as steel, cement, ballast, sand among other items alongside low money circulation that precipitated slowed uptake of land.

“The supply was there in good numbers but the uptake of both land and houses was low as most people had no money. We hope 2023 will be better owing to the focus of the Kenya Kwanza government on affordable housing. The sector cannot grow overnight but we hope the strides made so far could see significant and positive changes in the sector.

President William Ruto’s government has been seeking to put up at least 200,000 housing units every year, a plan he holds cannot be implemented by the government alone.

Ruto says his administration will rope in the private sector and local governments in the implementation of affordable houses through legislation of key policies that will make finances available for Kenyans to access loans alongside creation of a mandatory housing fund which will assist in building resources for long-term lending to developers and homeowners through mortgages.

With the rapid increase in urban population, high cost of construction, finance costs, and escalating prices of urban land, the sector continues to suffer weighty hitches that could plunge the government’s dream into an impossibility.