Difficulties in accessing loans and delayed building approvals are stifling the construction sector's growth, quantity surveyors now say.
This, they say, coupled with rising costs of material, mainly steel, has affected private sector and government-supported projects in the country and could derail growth of the sector.
According to the Institute of Quantity Surveyors of Kenya (IQSK), banks are shying away from lending developers citing market risks and ability to repay, mainly as a result of reduced demand where rents and sale prices have slowed down.
“Construction is a high capital area and local banks are not giving the much needed credit, mainly on risk factors. Banks don’t want us this is hurting the sector,” IQSK president Jennifer Musyimi said yesterday.
Central Bank of Kenya’s Credit Officer Survey report for the quarter ended March indicates the Covid-19 pandemic and expectations regarding general economic activity, “led to tightening of credit standards especially in building and construction sectors.”
The sector is among those targeted for intensified recovery efforts by banks this year, alongside personal and household, trade, transport and communication, manufacturing and real estate.
“Increases in Non-Performing Loans were recorded in four sectors: manufacturing (Sh25.6 billion), trade (Sh12.4 billion), real estate (Sh11.2 billion), and building and construction (Sh9.8 billion),” CBK says in its survey.
Last year, growth in the construction sector slowed down to 4.1 per cent compared to a growth of 6.7 per cent in 2021, the Economic Survey 2023 indicates.
The value of building plans approved by the Nairobi City County (NCC) increased by 58.0 per cent to Sh162.5 billion, while the number of residential housing units completed by the State Department for Housing increased more than threefold to 1,390 units in the same period.
These figures would have however been higher if the approval processes were smooth, IQSK notes.
“Sometimes the delays are unnecessary. We need to address these challenges,”Musyimi said, pointing to bribery at county governments on building approvals.
She spoke during an interview with the Star, on the sidelines of the launch of the Construction Cost Handbook by IQSK, State Department for Public Works, Kenya National Bureau of Statistics and the National Housing Corporation.
The handbook seeks to set market standards on the cost of construction in the country guiding on pricing of material, labour and projects.
Public Works PS Joel Arumonyang said the government’s services digitisation drive will help streamline the constructions sector.
“Embracing digital technology has the potential to revolutionise how we design, approve and construct projects which will also reduce costs,” Arumonyang said.
The construction sector is currently exposed to rising global steel prices, which could increase mega project costs and spike up costs of constructing houses.
Steel prices went up 30 per cent in the first quarter of this year, amid decline in production.
On Monday, global market index quoted a tonne at an average $1,682(Sh232 620.60), compared to $1,460 (Sh 201,918) in October last year.
“If the cost of steel continues to increase, it will definitely affect the construction costs. That must be checked in this era where affordable housing is the trend.
Steel is a big driver of construction cost and that has to be managed,” Musyimi said.
Last year, the rising cost of building materials in Kenya pushed construction costs by an average of Sh3, 000 per square metre, forcing constructors to hold on projects.
It was attributed to a disruption in the global market on the Russia-Ukraine crisis and the weakening shilling, with some cement, steel and paint firms increasing prices.
A bag of cement in the local market shot from an average Sh550 to above Sh750, while some regions witnessed prices of up to Sh1, 000 per bag.
Even so, cement consumption increased from 9.1 million metric tonnes in 2021 to 9.5 million metric tonnes in 2022, Economic Survey indicates.
The Construction Cost Handbook is expected to synergise building and construction costs in the market; a major win from previous trends when costs quoted by the government and the private sector differed causing discrepancies in the market.
It is expected to help stabilise the Construction Inputs Price Index (CIPI) and inflation impacts.
The CIPI measures changes in the cost of the inputs into construction industry, such as materials, hiring of equipment, labour, transportation, and fuels.
The index rose from 106.12 in the fourth quarter of 2021 to 113.65 in the fourth quarter of 2022.
Consequently, construction input inflation rose from 3.44 per cent in December 2021 to 7.10 per cent in December 2022.