Kenya’s real estate sector has faced a significant amount of turbulence this year, mainly due to the prolonged electioneering period, analysts have said.
“Basically we saw a lot of investors putting their projects on hold this year because of the prolonged electioneering period,” Hass Consult head of development consulting and research Sakina Hassanali said.
She added that unlike other sectors, investors in the real estate space began to adopt a wait-and-see attitude at the beginning of the second quarter. This, coupled with reduced property sales and development, ultimately resulted in a downward spiral in the construction industry.
AIB Capital’s Kenya Economic Update for the second quarter of the year showed that the real estate sector contributed 8.4 per cent to the country’s Gross Domestic Product during the January-March period. This means that the sector is among the key economic indicators alongside financial services, accommodation and food services, electricity and water supply as well as agriculture.
Another major blow to the sector during the year was the inability to access funding. According to analysts, the capping of interest rates, which most thought would ease financial access, only made banks more stringent on lending.
“We have seen a general reduction in market activity from both the client and investor end owing to the election situation and the rate cap which has affected developers’ access to finance,” Cytonn Investments senior manager for real estate Johnson Denge said.
He added that less than 50 per cent of private developers were able to access funds during the year, causing projects to come to a complete halt as others sought out alternate funding sources.
During the year, the real estate sector was also riddled with an oversupply especially for Grade B and C office space and middle-income residential space.
Both analysts said there was more vibrancy in the Grade A office and luxury home space, whereas the market for low-income housing had been under-developed.
“We are still not able to cater for the low-end market but we believe with the government initiative to provide affordable housing, we will see a lot more change in this market segment,” Denge said.
The analysts noted that moving ahead, a repeal of the rate cap law, support from both County and National government and consistent improvement in cash from Kenyans living abroad would be key contributors to the sector’s growth.
They added that it will also be crucial for investors to make decisions based on market research rather than going in blindly so as to avoid unnecessary losses.
“With the elections behind us, we expect a more vibrant real estate market,” Hassanali said.