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Kisumu developers hopeful on better year, but remain cautious

By Noven Owiti
Thursday, January 14th, 2021
Kisumu town.
In summary

The lakeside city experienced strong turbulence owing to the effects the Covid-19 pandemic, but real estate players in the region are hopeful the sector can flourish again.

Real estate players in Kisumu town are optimistic that the year will unlock fortunes for the sector after experiencing tough times in the previous year occasioned by the prolonged impact of coronavirus pandemic.

The pandemic presented shocking waves to the overall real estate industry business.

A general reduction in property demand was experienced across the market for the better part of last year, which was also characterised by slowed real estate growth.

As a result, most home buyers remained skeptical about the market and had to put their buying plans on hold hoping for an improvement months later.

On the other hand, property investors were left feeling the heat of Covid-19 scourge with their hopes of immediate possible economic turnaround dented by the surging virus positive cases in the country over the past months.

This is because many tenants were either not able to pay their rent on time or in full because of the economic shakeup brought about by the pandemic shocks.

Notably, other tenants pulled out of their dwellings for being unable to afford rent in the wake of the harsh economic situation, leaving several rental vacancies, while others sought temporary rent relief or waivers for unfavourable economic reasons.

Flattening of the curve

Consequently, because of reduced rental income, the landlords struggled to repay bank loans that financed their projects.

However, the property dealers  who spoke to Boma exuded confidence that this year will hand the sector an improved market outlook and growth compared to the previous one. 

“The year has started with slightly reduced cases of Covid-19. This can safely be assumed to be the beginning of flattening of the curve for the second and hopefully last wave.

We project this will energise the sector as the economy tries to go back to normalcy,” Bedvin Property Limited director Benard Odhiambo says.

He recalls that last year presented the sector with both challenges and opportunities as the pandemic made it almost impossible to have face-to-face interactions, which is necessary in the sector. 

He points out that due to the Ministry of Health restrictions that minimised personal contact most clients shied away from viewing properties and work at construction sites stopped for a better part of the year.

Odiambo is glad, however, that the daunting challenges also presented opportunities, which saw many people embrace virtual meetings and virtual property tours conducted.

He says the pandemic has revealed the need to digitise property records and to embrace online  transactions in a sector characterised by opaqueness and rigidity in embracing technology. 

Change not immediate

“This will largely stimulate much needed reforms in the sector going forward,”he states.

However, he warns that positive changes in the sector will not be immediately felt this year as the recovery process may not be instant.

“The recovery process may take a longer period than expected because the damage done to the economy in general was adverse,” he adds.

Consequently, the real estate agent recommends that the government considers giving more incentives to the built environment in line with its agenda on housing development to catalyse the industry’s general growth. 

Such incentives he says should include  tax breaks and additional expenditure on infrastructure growth to reduce the cost of real estate development.

He urges the sector players to be cautious in terms of how they finance projects going forward, noting that the most hit companies and individuals in the sector had their development projects too highly leveraged.

“It is emerging that developers had more debts compared to equity in the way of financing.

When the economy slowed down, most of them could not repay the loans with high interests.

This calls for more responsible borrowing in future,” observes Odhiambo.

Furthermore, he says the government should rein in on irresponsible financial institutions taking advantage of distressed borrowers, noting that there is need to protect borrowers.  

Skylark Construction Limited company director Vinod Patel explains that the recovery timelines for the real estate industry in the lakeside town is tied to the response in economic stability.

The realtor projects that the industry could take a little longer to recover this year after suffering from the pandemic massive impact.

He agrees with Odhiambo’s sentiments that the ripple effects of coronavirus pandemic on the local economy still being felt real estate business may not rebound immediately. 

“There has been a cash flow crunch and with the opening of schools, the priority would be diverted by parents to savings to the education for their children.

This is another probability that the economy may take longer to recover,” explains Patel.

With recent reinstatement of certain business taxes, he foresees a coresponding rise in the cost of building materials.

Consequently, the entrepreneur recommends an extension of the tax relief measures to catalyse business recovery. 

“Similarly, reintroducing the taxes will make the cost of building materials expensive even as the weakened Kenyan shilling against the dollar raises the prices of goods,” he says,” he says.

The proprietor further urges county and national governments to look at supporting businesses that were seriously affected by the pandemic, such as the hospitality and real estate to enhance money circulation and eventual growth.

“We are, however, positive that the property market in Kisumu will bounce back and record steady business this year. The previous year was considerably tough for us,” he states.

Home buying plans  on hold

A recent report by Cytonn real estate for July 2020 indicates that 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 lower funds to spend on their monthly housing costs, thus a decline in effective housing demand leading to lower home prices and lower market rents.

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

Consequently, developers were experiencing a cash flow issue as a result of buyers holding back on their pending installments.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 lending conditions.

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