Stakeholders in the building and construction industry have singled out the government’s Affordable Housing agenda as the main driver of the real estate sector in the new year following major boosts last year because of the continued positioning of Nairobi as a regional hub.
The positioning has led to the increased entry of new multinationals, creating demand for residential units, retail centres, commercial offices and hotels.
However, the building sector in Nairobi was impacted negatively by demolitions. The value of approved residential buildings by the Nairobi City County took a downturn last year, with the total value for the first 10 months coming in at Sh105.3 billion, 16.7 per cent lower than the Sh126.5 billion recorded for the first 10 months of 2017 (an election year).
The slowdown is attributed to several factors, including the uncertainty surrounding statutory approvals particularly in light of the ongoing demolitions of legally approved buildings and a slowdown in the overall spending power.
Despite the demolition setback, stakeholders say the sector was boosted by the kicking off of the affordable housing initiative as part of the Kenya government’s Big 4 agenda, which gained momentum with the launching of projects such as the Pangani estate in Nairobi.
Treasury had proposed a new tax where employers would contribute 1.5 per cent of monthly basic salary from each employee and remit it to the National Housing Development Fund on or before the ninth day of the preceding month.
However, last month, the Employment and Labour Relations Court Judge Hellen Wasilwa suspended the levy, which was to take effect on January 1, following an application by the Central Organisation of Trade Unions (Cotu).
Undeterred, Housing Principal Secretary Charles Hinga says the ministry is working in partnership with county governments, financial institutions, private developers, manufacturers of building materials and cooperatives to facilitate the provision of affordable housing.
The State has also established the Kenya Mortgage Refinancing Company, which will provide medium and long-term liquidity to mortgage lenders.
He says the ministry is mapping areas for installation of infrastructure and services for housing development, review and harmonisation of legislation, statutes and policies relating to land registration, housing and urban development.
Challenges remain. “The key to the delivery of affordable housing is the identification of land for housing development and fast -racking of titling and registration; mobilisation of finances and identification of financial models for affordable housing,” says the PS.
Out of the proposed one million homes by the State, 500,000 units are divided into slum upgrading and social development. The World Bank has already signed an agreement with the ministry to provide credit to banks to finance the mortgages.
The National Housing Corporation will also be offering a tenant purchase scheme once it is restructured. The private sector will construct the homes while the government provides incentives such as reduction of corporate tax.
The State will also give both financial and non-financial support to the private sector. The World Bank will give mortgages at 0.75 per cent while the Kenya Mortgage Refinancing Company will give banks guarantee to offer affordable mortgages to Kenyans to own homes built by the private sector.
Last year, there was an improved performance of the macroeconomic environment, with the country ’s gross domestic product growing by six per cent in quarter three of 2018, higher than the 4.7 per cent recorded in quarter three of 2017. “This means there the environment is ripe for the sector to do better this time round in addition to the relative political calm,” says real estate developer, Stephen Okwaro.
He says the prospect for growth was noted in the residential sector where there was an in an increase in focus towards the affordable housing initiative as part of the Big 4 agenda. Out of seven Nairobi Urban Regeneration Projects, Pangani estate was launched on December 11.
The project will see 1,000 units delivered to the market and other projects will follow suit by the end of 2019. The plan is to see 500,000 units completed by 2022.
Last year witnessed more efforts towards delivering affordable housing, with policies and financing initiatives geared toward making it a reality. “Generally, we expect the current performance of the sector to persist in 2019 with certain areas in the upper mid-end and lower mid-end segments that continue to exhibit growing demand from home buyers offering investors double-digit returns,” says Elizabeth Nkukuu, chief investment officer at Cytonn Investment company.
“With the continued interest in the Kenyan property market by both local and international players, continued investment in infrastructure and improvement of the legal environment, the Kenyan real estate sector is definitely poised for further growth in the long term,” she added.
With a rapidly growing population and more so, an increasing middle class, the residential sector has recorded the highest demand with the nationwide housing deficit standing at more than 200,000 units annually and an accumulated deficit of over two million units.