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Real estate sector slows down as drought bites

Businesswoman and mother of two Sharon Mwikali has no regrets, just a few weeks after she shifted to an upmarket area along State House Road despite a steep monthly rent of Sh70,000 for a single bedroomed unit.

The mother of two moved from Syokimau after a borehole sank in the compound of the gated community project dried up. Sharon and her neighbours were forced to start purchasing water at the onset of the present raging drought period last December.

“Before the borehole dried up, I had constructed a greenhouse and irrigated it using water from the borehole, with enough left for domestic use,” says Sharon. The cost of water rose to Sh15,000 per month in addition to the Sh85,000 rent for the three bedroomed bungalow with a compound.

“The cost and health fears convinced me to move out,” Sharon said at the Rama Homes stand during this year’s Homes Expo held at the Kenyatta International Convention Centre (KICC) recently.

Borehole costs

And she is not the only one moving  out to another house. “The drought is having a serious impact on real estate. In Syokimau, vegetables, flowers and bushes have wilted after boreholes dried up,” said sales executive at Raha Homes, Deqa Ahamed. 

“Landscape gardens have been affected and our clients are seeking to cooler places with better water supplies,” she added. Ahamed fears Raha Homes with property in Syokimau, South C and Parklands may miss more potential clients if the drought persists.

Buyers keen to own homes and other property investors have been playing a wait-and-see game with developers.  “Construction depends on water. Lack of it pushes up the cost. Even if we sink a borehole, how sustainable is it?” posed Kenneth Mugo, operations manager at Mahiga Homes. 

Mugo said the prolonged drought period has resulted in increased costs for developers, up by a million shillings for a quality borehole to supply 50 bungalows instead of Sh2.5 million normal cost.  “There has been marked slowdown of uptake of homes. As a developer, I have to give casual labourers money and off days to go and fetch water for their own households,” he said.

A research analyst at Cytonn Investments, Juster Kendi, said there is apprehensiveness about the uptake of products because potential clients have less to keep aside and invest due to the rising cost of living. “A marked decline in land sales is impacting negatively on real estate. People buying land for agricultural use consider it useless if it lacks access to water sources such as dams and rivers,” says Kendi.

Adoption of water rationing programmes by water and sewage companies in areas hard hit by drought has led to slower occupancies, says Kendi. Agriculture contributes about 19 per cent to the Kenya’s Gross Domestic Product, according to the Kenya National Bureau of Statistics (KNBS), Q3 2018 GDP updates. The government has declared the current drought a national disaster and at least 1.1 million people are in need of food while agriculturural sector is devastated.

“Reduced disposable income driven by a decline in agricultural output translates to low disposable income, which is mainly channelled into securing food which is in low supply and highly-priced,” said Kendi.

“There is also a decline in development activities as the government shifts focus to managing the drought, such as allocating Sh11 billion to the effort, thereby reducing the amount channelled into infrastructure and the affordable housing agenda.

Corruption headache

Marketing Leader at Safaricom Investment Co-operative, Gloria Chebet, said the hard economic reality means potential property owners are not able to borrow to invest.

“They are concerned more with survival. We have property where owners are encouraged to carry out farming. This is affecting them as incomes are cut and there is less to invest,” she said. 

“The rate at which customers have been buying property has declined. The economy is bad and people have been hit hard. Corruption, too, is a headache,” Chebet added, also speaking at the expo.   

The co-operative is encouraging tree-planting programmes in all its properties and at the same time encourage clients to recycle water for agricultural purposes and trees to cushion them.

The biggest building and construction exhibition in the region, now in its 15th year,  was staged at KICC from April from 11 to April 14. 

While some industry experts have predicted the burst of Kenya’s real estate bubble, there is some refreshing news from others – the bubble isn’t bursting.  “Instead, it is changing shape to become as innovative and as accommodative as possible,” said Daniel Ojijo, Founder and Executive Chairman of Homes Kenya Limited, the organisers of the Kenya Homes Expo. 

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