A clear sign of the market’s slowdown is shown on the available reports regarding construction materials and the value of building plan approvals which are decreasing month after month.

Cement uptake in six months to June 30 fell 7.9 per cent, while data from the Kenya National Bureau of Statistics (KNBS) indicate cement consumption in the first six months of the year stood at less than 2.75 million tons, down from 2.98 million in 2017.

Consumption hit a four-year low after rising to a peak of 3.1 million tons in 2016 at the height of construction of the first phase of the standard gauge railway (SGR), Kenya’s single largest post-independence infrastructure project. Lower consumption has led to reduced production.

During this period, production stood at 2.84 million metric tons from 3.18 million metric tons a year ago. Bamburi reported a 66.5 per cent dip in net profit for the year ended December to Sh1.97 billion, while ARM Cement’s loss widened 32 per cent to Sh6.54 billion.

The same trend applies to almost each and every sector of material production and sales related to the construction and real estate industry. Production of galvanised iron sheets also went down by 6,500 tons to 111,562 metric tons, the data shows.

The volume of construction material imports such as iron, steel bars and rods declined by 4.9 per cent during the first quarter of 2018.

The problem is not only in the residential market; commercial property sector is also under huge pressure.

The problem is not only in the residential market; commercial property sector is also under huge pressure. PHOTO| FOTOSEARCH

This decrease was an obvious result connected with the decrease of the total number and size of new buildings that are coming up as well as with the slower pace that developers are executing the existing projects which are under construction.

It is notable that the value of building plans approved in Nairobi County decreased to Sh60.11 billion in the first quarter of 2018 compared to Sh61.72 billion in the first quarter of 2017. Lower imports, production and consumption of building materials, as well as less building plans, clearly indicate that the construction sector is slowing down, while the current oversupply in the market and low transactions have made developers hesitate to commence new-builds.

The problem is not only in the residential market. Commercial property sector is also under huge pressure.

Recently, a management company decided to offer six months free of charge and next six months with 50 per cent discount on the rent in order to attract tenants for a mall they manage, as it has been empty since it opened its doors a few years ago.

Despite the fact that they have been negotiating and accepting lower rents since the beginning of 2016, commercial properties owners have to face the cruel reality of an oversupplied market, only left to watch their investments and properties remain vacant and lose in value day after day.


At last the latest trend in the market is the affordable housing. Under the current plans, the government intends to build houses of one, two and three bedrooms which will be sold at Ks 600,000, one million and three million shillings respectively.

Using common sense, we all understand that this is not going to support in any way the current real estate market. Low cost housing project does not make economic sense to investors as there is limited margin for profits via this model of development which globally has been used mainly as public or PPP projects.

In order to successfully implement a low cost/affordable housing concept, the government has to find the budget required for the implementation and construction.

To finance the project, Treasury imposed a new tax where employers will contribute 1.5 per cent of monthly basic salary from each employee and remit it to National Housing Development Fund on or before ninth day of the preceding month. Employees will equally contribute another 1.5 per cent subject to maximum contribution capped at Ks 5,000 from January next year.

To make a long story short, there is a structural problem with Kenya’s real estate market.

During the last ten years which included a period of amazing property value growth, the market was operating in the vacuum. Only the few who realised what was happening and the market’s absurdity, among which are the banks, kept a neutral safe attitude.

The fact that Kenya’s real estate was heading towards a bubble with high volatility was confirmed by the fact that not even one big international real estate development company entered the market with the majority of them not even showing any interest to invest.

The large majority of investors and capital that was invested in the sector included money of disputed origin, money from Kenya’s diaspora and money from Kenya’s medium to low income class who invested their lifetime savings in a market which they did not know or understand, risking their hard earned money in a fully manipulated market.


There was a fundamental issue with this market. Too many investors, but very few qualified users for the market supply.

A big misunderstanding of what exactly is Kenya’s middle class and the market’s affordability. These are the key factors which mislead the sector in an unsustainable growth.

After the stock market bubble, the real estate bubble is now creating huge losses affecting the general economic stability of the country.

Kenyans’ obsession for risky investments, the general belief that you cannot go wrong with land and property and the inability to understand investment risk may become the guillotine that will cut the head of her promising economy.

The country needs to invest in the real economy, the primary production sector, and manufacturing, blue economy, create jobs and build a solid future.

There is more proof to show that the market is heading towards a big recession. The last Kenya’s Homes Expo was more than a sign that the market is suffering.

Smaller than ever with few participants and even lessor visitors, the once shining hallmark property event has lost its glamour, not because of the organisers, but because of the market dynamics.

Understanding the real situation of the market on time and act before it is too late is a good advice for those who are still involved in the property market.

It is obvious that the property market operates in cycles. There was a long period of unreasonable and unsustainable growth which will be followed by a longer period of recession.

Price adjustments, portfolio and finance restructure are going to be the upcoming trends in order to control and minimise losses and survive during the period of recession.

It is important to stay up to date, follow up with the market developments as well as the local and international trends. Remember always that what makes you money is the risk-return trade off.

That means higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return.

This trade off which every investor faces between risk and return while considering investment decisions will determine your portfolios’ success.


The writer is the director of Avakon Ltd

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