Why there is a boon in real estate amid tough economic conditions

An artwork of houses to be constructed at Buxton estate in Mombasa. [Omondi Onyango, Standard]

Just a drive or a stroll around the city, or in the satellite areas in the metropolitan, you will always meet several construction sites. Some are apartments like in the case of Kilimani and Parklands, or warehouses as witnessed around industrial area and Mombasa Road.

Such excavations are happening while the economic conditions are not as friendly - occasioned by high interest rates, inflation and rising cost of commodities. Such begs the question: where is this money coming from and why this rapid boon?

Zaharaa Khanbhai, the head of Commercial Property Finance overseeing East Africa (Kenya, Uganda, and Tanzania) at Absa Bank, emphasises the enduring advantage of real estate within the macro environment.

She observes that whenever there’s a surge in any sector, there tends to be a spill-over effect into property and real estate.

According to Zaharaa, Kenya, as an emerging market within the continent, holds a prominent position in the minds of foreign investors, particularly in the wake of the Covid pandemic.

“Before Covid, institutional investors such as pension funds withdrew their investments from Kenya in pursuit of higher returns, driven by macroeconomic factors. However, with the decline in interest rates, we’re witnessing a resurgence in investment flow,” she remarks.

While inflation is still lagging, which, she says, usually takes time after a drop in interest rates, investors are still keen to put their money in the country. “From a property and real estate perspective, there are a lot of opportunities for those investors to come and actually earn a decent return,” she says. Affordable housing, logistics, and light industries, she says, are some of the asset classes where inflows of property investment are being witnessed.

When asked how Kenya compares to Tanzania and Uganda, Ms Khanbhai says every market seems to have its own nuances. For example, in Uganda, with the exploration of oil and gas, there are multinationals flocking in.

“And because those institutional investors need a space to stay, we are seeing a lot of investment in diplomatic housing, high-end accommodation, and office spaces targeting oil marketers that want to set up in Uganda,” she says.

The same is happening in Tanzania, particularly due to President Samia Suluhu’s push to position the Dar es Salaam port as a key hub in the region whose spillover is being witnessed in the logistics and commercial office space.

“While Ms Khanbhai noted that every country in East Africa has its own strengths in the property market, Alex Njage, Head of Real Estate and Construction at Bowmans, a legal firm that facilitates investors, said Kenya seems to be attracting not only overseas but also regional investors.

“There are a lot of investors from Ethiopia who are coming to Kenya, saying, ‘You are a democracy, your elections work from their perspective, and you do not have foreign exchange controls,’” he said while addressing the just-concluded East Africa Property Investment (EAPI) summit held in Nairobi.

These conditions make Kenya an attractive investment ground for them. “And for that reason, they say, ‘As long as you can give me security of tenure on my land, then I am going to invest,’” he said.

Mr Njage said that while some investors have invested millions in light industries, logistics, and warehousing, even more cash has gone into hospitality.

He noted that the absence of accommodation and conferencing facilities once offered by Intercontinental, Laico Regency, and the Hilton, which closed their doors, has left a gap that investors seek to fill.”

“Outside Nairobi, there is a lot of Foreign Direct Investment  in tourism,” he said. “The thing with boutique high-end lodges is that you will never hear anything about them, but the amounts of money being invested there are substantial.”

He noted a lot of activity as well in Special Economic Zones like Tatu City, which has become a safe haven for multinational companies dealing in manufacturing, logistics, and warehousing due to the associated tax incentives. “The investors are coming in with a regional outlook,” he said.

Affordable housing, however, while being an area of interest for almost a decade due to the Government’s push, appears not to be as vibrant as other asset classes.

“A few of them have taken off; a few have not. The incentives are there on paper, but implementation is a challenge,” Mr. Njage pointed out.

The ongoing boon, added Somaya Joshua, Head of Commercial Property Finance in charge of Pan Africa (outside South Africa) at Absa Bank, is also being contributed to by the growing middle class.