BY PETER KIMANI
Kenya’s real estate sector is expected to recover significantly from a slump recorded in 2018 on the back of new investments and policy interventions meant to ease house ownership.
The Kenya National Bureau of Statistics (KNBS) in its latest assessment of the real estate sector said the sector’s contribution to the Gross Domestic Product (GDP) declined marginally to 7 per cent last year from 7.1 per cent in 2017, and recorded a slowdown in terms of growth rate, having grown by 4.1 per cent compared to 6.1per cent in 2017.
According the KNBS’s Economic Survey 2019 released in May, several other key indicators in the sector showed an industry grappling with structural challenges which threaten to worsen the state of affairs, at least if no interventions are made.
What is the future of the real estate sector?
To better understand this, the Management Magazine analysed the data and trends and spoke to analysts to predict the trajectory the industry will take in the coming years.
According to government data, the slowed performance was manifested in the uptake of credit to the building and construction sector which increased marginally (1.8 per cent) in the review period compared to 6.8 per cent growth in 2017. Loans and advances from commercial banks to the construction sector rose from KSh112 billion in 2017 to KSh114 billion in 2018. Additionally, the percentage change in cost of materials was up 3.1 per cent in 2018 compared to 3.0 per cent in 2017, meaning investors were spending more on building materials, making it more expensive to bring more units to the market. The cost of labour for residential and non-residential buildings increased by 5.3 per cent in 2018.
All is not doom.
There was an increase in consumption of cement from 5,856.6 million tonnes in 2017 to 5,948.7 million tonnes during year. The growth was also partly attributed to notable increases in the importation of key construction materials. For instance, the quantity of cement imported increased while that of iron and steel bars rose two-fold in 2018. As such, the number of housing units under construction in 2018 were 2,028 at an estimated cost of KSh4.3 billion. The total number of completed private residential and non-residential buildings approved by the Nairobi County Government were 12,304 in 2018 compared to 11,902 in 2017. The number of completed public residential buildings were 430.
What is ailing the sector?
The housing deficit in Kenya remains high at approximately two million units, with an annual demand of 200,000 units according to National Housing Corporation, driven by a rapid population growth rate and a high urbanisation rate. According to independent analysts, most developers are unable to meet this demand due to inadequate credit supply, high cost of funding, low uptake due to low purchasing power of Kenyans, hence supplying only 50,000 units annually into the market thus leading to an annual deficit of 200,000 units across Kenya. According to the World Bank, 83.0 per cent of the existing housing supply is for the high income and upper-middle-income segments, with only 15.0 per cent for the lower-middle and 2.0 per cent for the low-income population. “This is as a result of developers seeking higher returns from high end developments targeting high net worth buyers who have high disposable income thus providing more demand for the houses, resulting in higher uptake,” said Cytonn Investments in a June 2019 research note on the sector.
Affordable Housing Initiative
To tackle the current challenges, the National Government has established the Affordable Housing Initiative, as one of its Big Four pillars to promote long-term economic development, focused on delivering 500,000 housing units for the lower and middle-income population segments by 2022, with a price range of KSh600,000 to KSh3 million per house.
Late May, the National Treasury launched the Kenya Mortgage Refinancing Company (KMRC). The KMRC is a non-bank financial institution, incorporated as a limited liability company to provide affordable long-term funding and capital market access to primary mortgage lenders such as banks and financial co-operatives.
By the beginning of June, KMRC had mobilised KSh37.2 billion, meeting the minimum core capital requirement of at least KSh1 billion for operation as provided for in the Central Bank of Kenya (Mortgage Refinance Companies) Regulations 2019. The facility has received funding support of KSh25 billion from the World Bank, KSh10 billion from the African Development Bank (AfDB), and KSh200 million from Shelter Afrique. These funds, said Treasury Cabinet Secretary Henry Rotich will be applied towards enhancing access to affordable housing finance, strengthening KMRC balance sheet, and providing requisite credit enhancements to support KMRC issuance of mortgage-backed bonds in the capital market.
Most Kenyans earn relatively low incomes and are thus unable to afford decent housing, data shows, highlighting the potential of interventions such as the KMRC. For instance, for one to purchase a standard 3-bedroom affordable housing unit costing KSh3 million using a mortgage at the current average rates of 13.6 per cent and a tenure of 12-years, they have to earn a minimum income of KSh106,000 per month in order to be able to pay the monthly payments of KSh42,359, an analysis by Cytonn shows. According to data from the KNBS, 74.5 per cent of employees in the formal sector earn less than KSh50,000 per month, thus mortgages are out of reach for most people. In addition, 83.4 per cent of total employment is in the informal sector, which is characterized by small scale activities, relatively unpredictable incomes and limited job security and thus they are unable to afford a house.
At the same time, property prices are continuously escalating, attributed to increased demand for housing due to the high urbanisation rate and population growth, thus locking out most Kenyans who are unable to afford them. These are the gaps the government hopes to address in a slew of initiatives which has been rolled out in the past few months.
What to do?
The government has introduced a mix of incentives such as exemption from stamp duty tax for first time home buyers, and 15 per cent corporate tax rate relief for developers who provide at least 100 low – cost housing units per annum. The state of play has also been enhanced with the establishment of the National Housing Development Fund (NHDF), which includes a 1.5 per cent levy on employee’s monthly basic salaries up to KSh5,000 and the employer expected to match the same amount that will be channelled into the fund. The initiative is however in abeyance following a series of court cases meant to block its implementation.
Peter Kimani is a freelance journalist based in Nairobi. Email: kimwaura@yahoo.com
