The year 2017 has had its own challenges that directly affected Real Estate developments in Kenya. Among them was the political situation that streched all independent organs of the Government to the limit. But not to the breaking point. This had clouded uncertainty in the market whereby construction of roads, houses, apartments and office blocks stalled. Luckily, for the optimistic developers, everything continued as planned. However Cytonn Investments Company had made a report to project what was expected as follows.
Real Estate Outlook
In 2016 real estate delivered high returns averaging 25.8% across all themes, with the best performing themes being retail and offices with average yields of 10.0% and 9.4%, respectively. In 2017, the sector was expected to continue with the good performance across all themes compared to traditional asset classes. The key drivers of real estate in 2017 were:
- Demographic Trends – Such as the growing middle class, rapid urbanization, rapid population growth and the youth bulge (21 to 35 years) was to drive real estate development in 2017. This is as developers work towards satisfying their housing, entertainment and consumption needs thus boosting developments in the residential and retail themes
- Large Housing Deficit – According to the National Housing Corporation (NHC), there was an effective housing deficit of over 200,000 units per annum to cater for the low to middle income market with Nairobi and its metro accounting for over 50% of this deficit. Hence we witnessed increased development activity in a bid to tap into this market, especially through affordable housing initiatives that catered to the segment, and reduced the deficit,
- High Returns – Real estate has consistently outperformed other asset classes in the last 5-years, generating returns of over 25.0% p.a., compared to an average of 10.0% p.a. in the traditional asset classes. In 2016, real estate delivered returns of 25.8%, against (8.5%) in equities and an average of 14.7% for the 10-year government bond. This significantly higher returns thus lead to increased investments in the real estate sector, and especially from global and institutional investors seeking attractive risk-adjusted returns in the market,
- Growing Businesses and Entry of Global Brands – In 2016, a number of global brands including Wrigley’s entered the Kenyan market with Volkswagen announcing plans to put up shop in Kenya in 2017. These together with the growing small and medium businesses lead to increased demand for office, industrial as well as residential real estate to house the offices, products and employment, respectively,
- Continued Infrastructure Development – Infrastructural development has led to opening up of new areas for development e.g. along the Northern Bypass, Eastern and upcoming Western Bypass. The LAPPSET Corridor, SGR, expansion of airports and seaports are all opening up Kenya to real estate development and will lead to increased development along the hubs in towns such as Ruaka, Kikuyu and Athi River. Projects in the pipeline include the Standard Gauge Railway (SGR), which is now operational
- Better Operating and Legal Environment – 2017 had a better legal and operational environment for real estate investments as several policies enacted in 2016 come into action. These policies included:
- The 50% reduction in tax for developers constructing more than 400 units p.a.,
- The Banking (Amendment) Act, 2015, capping interest rates at 14.0%,
- The proposal to remove NEMA and NCA, 2
- Digitization of land records, and
- Increased transparency in the lands ministry as well as issuing of title.
The above, have been implemented, to boost real estate development by reducing construction costs, and fastening transaction process in the development process,
- Domestic and MICE Tourism – Increased domestic tourism as well as the growing Meetings Incentives, Conferences and Exhibitions (MICE) segment of the market drove real estate in 2017. This was enabled by improved security, growing businesses, SME’s as well as county governments that greatly boosted the hospitality industry in 2017,
- Devolution – Devolution is continuously boosting real estate development as it is placing on us on the County Governments to improve the real estate landscape, which has led to reduced bureaucracy and investment in infrastructure as well as creating demand for real estate, especially residential units, office space and retail to cater for population moving to the county headquarters.
- Increased financing – From both local and international players to real estate boosted investments in the real estate sector.
Nevertheless, Cytonn been a leading real estate developer had also reported 2017 challenges that included; High land and construction costs, difficulty in fundraising for developments, increased supply and competition and political uncertainty.
Read full report here ;-https://www.cytonn.com/download/Cytonn_Real_Estate_Annual_Market_Outlook_2017.pdf