How politics, lack of funding, drought affected real estate sector

Architectural design of the stylish two and three-bedroomed apartments that are being developed under a joint venture between HF Group's development and investment subsidiary, HFDI and Richland Development Limited. They will be located at Kamiti Road, approximately 800 meters past Kahawa West junction.

 

Kenya saw a 0.6 percentage point dip in the economy this year from an earlier forecast of 5.5 per cent growth. According to a World Bank report released last week, this was the weakest level in five years.

One of the sectors that were hardest hit was real estate where, despite a number of projects breaking ground, uptake remained suppressed for most of the year. According to players in the local real estate sector, prolonged drought, lack of access to credit and a lengthy electioneering period saw the sector face one of its turbulent periods.

Here are some reviews of 2017 from a number of players in the industry.

Frank Ireri, managing director, HF Group

2017 has been a busy year for us as far as project development was concerned. We completed 480 units of the 1,272 apartments planned for Komarock Heights. We also managed to construct 60 per cent of Richland Pointe along Kamiti Road, Nairobi.

In addition, we broke ground for 560 out of 1,500 units of Clay City, a project next to Thika Superhighway. While such projects got off the ground, construction costs remained high. In most cases we had to service the land, something that the government should do before developers move in.  

However, success in this sector relies on how well buyers gets access to financing. 2017 saw a depressed lending environment. True, we had sales during the year but not as we had hoped. While politics did not make it easier for buyers, the interest rate cap was also a big factor.

We remain ‘cautiously optimistic’ going into 2018. As a group, we are also working on a product that will mitigate the effects of the interest rate cap.

Lee Karuri, developer with Resorts and Cities

The year saw enhanced developments in our two key projects – Longonot Gate near Naivasha and Makuyu Ridge in Muranga County. Longonot Gate is a 2,400-acre community woven around a picturesque golf course created by Irish designer David Jones. The development is 50 per cent complete. Makuyu Ridge, on the other hand, broke ground this year.

The project will be made up of 1,500 homes which, together with commercial amenities, golf courses, hotels, hospital, schools, shopping malls, and sports centres will inject Sh140 billion into the economy.

While work progressed on the two projects, investors put major decisions on hold in 2017. The country was on an electioneering mood all year round. Then there was the drought that ravaged the country depressing the economy further. These factors resulted in low liquidity in the market and caused a 40 per cent dip in business compared to 2016. You have to understand that buyers come from all sectors of the economy.

Those in employment held back from committing their earnings during such a long period of political uncertainty.

People who buy into a project on proceeds from businesses had a similar attitude. As developers, we gauge market sentiments by the buyer’s ability to purchase our products.

We are hopeful that the coming year will see enhanced sales. While there are still a few political issues to deal with, these are not likely to hold up investments.

The rains at the last quarter of the year have, to an extent, mitigated for the drought. The one issue that remains is the interest rate cap. We hope to hold more discussions around this issue in the coming year while we investigate alternative means of funding.

Daniel Ojijo, founder and CEO of Homes Universal

The market was not as active as we anticipated. However, our marketing arm performed well.

We were able to dispose of a good stock of office space despite the market glut.

Politics was largely to blame for the slowdown in the market. Still, we should not be gloomy since Kenya is not a failed state.

People still shop at supermarkets, an indicator that the retail sector was quite active. The rental market too was quite busy too despite the perceived oversupply of residential units mainly in Kilimani, Kileleshwa, Westlands and Lavington.

Lack of financing affected sales. You must remember that people buy into real estate, especially residential units as a third option.

That is why we talk of food, clothing and then shelter in that order. People must have money for the first two before they delve into the third one. You can only buy a house if you have disposable income.

Such income was hard to come by in 2017. We can only look for better times in 2018.

Johnson Denge, Cytonn’s senior manager for regional markets

Despite the slowdown witnessed in the market in 2017, our performance remained stable. We adopted an institutional framework for the development of diverse concepts in real estate. This year, for example, we launched two developments such as Riverrun Estates in Ruiru and Cytonn Towers in Kilimani, worth Sh15 billion and Sh16.4 billion respectively. We also broke ground in another two developments namely the Sh2.5 billion Taraji Heights in Ruaka and Sh12.1 billion The Ridge in Ridgeways. These projects saw our real estate investment portfolio grow to Sh82.1 billion.

But this was not without challenges. There was a slowdown in sales volumes due to the wait and see attitude adopted by investors during the electioneering period. High land and construction costs had an effect on the business.

However, our institutional framework largely cushioned us from these challenges and as at quarter three of 2017, we recorded net profits of Sh526 million, a 400 per cent increase from the same period in 2016. Going into 2018, we expect the demand in the market to pick up with residential real estate having the highest demand given the huge housing deficit of two million units. We will also focus on expanding both locally and regionally.

Alex Muema, managing director, Ndatani Enterprises

There was little to write home about as far as land transactions were concerned. Since March, people held on to their money as they waited to see how the political season would pan out. There was talk of campaign money filtering to the property market but this was never the case. On the other hand, there was little lending from banks.

There is hope that things will change for the better in 2018. Already we are getting calls from banks with offers for funding.

Lenders have realised that interest rate cap will be here for the long haul and are adjusting their financing structures accordingly.

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