2020’s Gloomy Economy, A Worry For Real Estate Companies

Rapid industrialization, an expanding middle class with increased purchasing power die to higher net disposable income and rapid population growth rates are some of the factors that players hope will shore up the real estate sector in 2020. This is in addition to the repealing of the interest cap last year which Beatrice Mwangi, a research analyst at Cytonn real estate, expects to stimulate the credit environment and overall economy and spur growth in the building and construction industry.

Other factors that will drive the sector include increased traction in mortgage market with the launch of the Kenya Mortgage Refinancing Company (KMPC) in 2019, continued national government support for the affordable housing initiative and the entry of multinational corporations and retailers into the country.

Developers say that they are hoping to cash in on the affordable housing deficit growing at more than 300,000 homes a year and support from the state which is keen to boost the affordable housing agenda, one of Jubilee’s big four agenda.

“The affordable housing deficit is bigger than the government can supply and it’s growing,” says Kamau Yusuf, a property dealer in Juja, Kiambu County. Kamau says there is ample scope for private developers to provide affordable housing using cost-efficient technologies.

“Despite this, the sector is expected to be constrained by delay in processing of construction permits by county governments and oversupply in select sectors such as commercial office, retail and middle-high end residential sectors,” says Beatrice. Delays in the processing of building permits by some county governments was a major setback for private developers in 2019.It resulted in prolonged project implementation timelines, ultimately hurting the ease of doing business.

Peter Nyaga-CEO Mahiga Homes says 2019 was slow because of lack of disposable incomes for people to invest in housing, mainly due to demonetization and interest rate cap. Antony Mugo, a director at Exurbia property dealers says their biggest challenges have been pricing and lethargy at land registry. “Investors have problems putting up agricultural infrastructure such as boreholes and cold rooms until they are registered owners,” regrets Mugo.

Analysts are of the view that the economy is likely to remain subdued this year. This country recorded slower levels of economic growth last year, averaging 5.4% for the first three quarters of 2019, compared to an average of 6% in a similar period in 2018, according to Edwin Dande, CEO Cytonn Investments.