Demand for cement drops to four-year low

An extended period of aggressive building has led to over-supply of both residential and commercial units. [Kibata Kihu, Standard]

Fewer houses were built last year, leading to depressed consumption of cement as the real estate sector showed signs of distress, a new report shows.  

The value of buildings approved for construction by the County Government of Nairobi over the period declined by 13 per cent to Sh210.3 billion, according to the report by Kenya National Bureau of Statistics (KNBS).

This is down from Sh240.7 billion worth of buildings approved in the previous year.

As a result, consumption of cement plunged to a four-year low, with developers absorbing 5.4 million tonnes of the input - the lowest since 2014 when 5.1 million tonnes of the commodity were consumed.

This comes at a time when analysts have projected a price correction in the housing sector after an extended period of aggressive building led to over-supply of both residential and commercial units.

Knight Frank noted that the oversupply was particularly pronounced in the high-end housing residential market which has put pressure on prices and rents.

“Prime residential prices fell by 4.5 per cent in 2018, compared to a 0.9 per cent drop in 2017, as the segment turned into a buyers’ market,” said Knight Frank in its Market Update report covering the second half of last year. The report also noted that rents in the top-end of the market dropped by 1.3 per cent during the period under review.

“Sustained demand from expatriates and middle to high-income earners, who are keen on location and quality of houses, helped reduce the decline in high-end residential rents.”

Residential buildings valued at Sh131.8 billion were approved last year compared with Sh150 billion in 2017. Commercial units built were valued at Sh78.4 billion, down from Sh90.6 billion in the previous year. Several listed companies are expecting a drop in profits due to poor performance in real estate last year.

Financial services provider, UAP Holdings was one of the listed firms that projected their profits to decline last year due to depressed property valuations.

This even as official data showed that expansion of the real estate sector was not as impressive as it has been. 

UAP issued a profit warning, noting that it expected earnings for the current financial year to be lower by at least 25 per cent.