In Summary
  • In a struggle to pay off loans, early this year, a number of developers slashed down prices of residential houses by up to 2.8 per cent after months of steadily falling demand which saw many residential units remain unoccupied for a prolonged period of time.
  • Financiers, including banks, have teamed up with auctioneers in a bid to recover their money thanks to an unresponsive market.

  • You would imagine that auctioneers are having a field day, but no, they too are having a hard time making a sale in a stubborn market that insists on slowing down.

It has been this way for some time now - property prices in Nairobi are way above the roof, a factor that has significantly slowed down the market.

For the last three years, there has been a housing glut build-up, and ready developments are simply sitting idle with no takers. In the peri-urban outskirts of Nairobi, in Kitengela, Athi-River and in Ngong area, high-end residential estates that took millions to put up stand empty and forlorn as developers that hoped to make a handsome profit sink in debt they are unable to pay.

DISPOSABLE INCOME

In a struggle to pay off loans, early this year, a number of developers slashed down prices of residential houses by up to 2.8 per cent after months of steadily falling demand which saw many residential units remain unoccupied for a prolonged period of time.

Financiers, including banks, have teamed up with auctioneers in a bid to recover their money thanks to an unresponsive market. You would imagine that auctioneers are having a field day, but no, they too are having a hard time making a sale in a stubborn market that insists on slowing down.

The first quarter of 2019 was the slowest for the real estate sector in four years. The Kenya National Bureau of Statistics (KNBS) data, covering the third quarter ended September 2018, shows real estate recorded a growth of 5.8 per cent, the slowest since the 5.4 per cent registered in the fourth quarter of 2014.

In December 2018, the Central Bank of Kenya’s Quarterly Economic Review noted that the real estate sector recorded the highest growth in non-performing loans in three months ended June. Non-performing loans (NPLs) in the sector rose by Sh6.1 billion, (15.8 per cent) in April-June to Sh44.4 billion compared to the previous quarter where NPLs rose by Sh1.4 billion, from Sh33.2 billion to Sh34.6billion. This was attributed to slow uptake of housing units. A loan is considered non-performing if it remains un-serviced for more than three months.

Despite the government reporting that the economy grew by 6.3 per cent last year in crops and animal production alone, the cost of living remains high, which has affected disposable incomes that would be normally directed towards real estate investments. This, coupled by lack of access to real estate financing for both off takers and developers, has hit the sector hard.

A report by the Economist Intelligence Unit’s Worldwide Cost of Living survey released in March this year, states that the cost of living in Nairobi has risen 13 places from position 82 in 2017 to position 69 in 2018.

SCALLING BACK

In the last two years, property price growth has been supported by effective demand surpassing supply, with sectors such as commercial offices witnessing demand for top-notch office spaces especially from incoming foreign firms and workers, who are also willing to pay a premium for this.

“Also, land and overall development costs in Nairobi are relatively high, due to high financing cost, poor infrastructure and lack of utilities which developers have to provide, thus pushing property prices up as this is passed onto the end-buyers,” explained Patricia Wachira, a senior research analyst at Cytonn Investments.

“The relocation could be possibly to move to serene environments characterised by good infrastructure, utilities and amenities. However, for firms closing shop in Nairobi, this could be attributed to the tough global economic environment which has led to most firms scaling back on foreign operations,” Ms Wachira explained.

But it is the lack of ease of doing business that has really affected the property market.

“The licensing and approvals by both the national and county governments have pushed up the cost of doing business. This, coupled with corruption, have pushed off investors,” says Mr Moses Muriithi, the CEO at Fanaka Real Estate.

Relatively high costs of financing, burdening tax laws such as the proposed increase of capital gains tax, and the interest rates cap law which has led to tight lending practices from banks thus constraining access to finance for developers and homebuyers, are the key challenges facing the real estate sector.

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