We take a look at some of the developments expected to shape the real estate industry in 2019.
National Housing Development Fund
Despite the suspension of the 1.5 per cent levy that was to be deducted from workers’ monthly salaries to finance low-cost housing under President Uhuru Kenyatta’s Big Four agenda, all is not lost.
Contributions to the National Housing Development Fund were to start on January 1 2019 but the Employment and Labour Relations Court suspended the plans in December 2018 following an application filed by the Central Organisation of Trade Unions (Cotu) on grounds that there was no public participation.
If implemented, employees will be required to contribute 1.5 per cent of their monthly pay to the fund, with employers matching the amount. The fund, which has already been approved by Parliament, is supposed to offer cheap housing loans to both developers and aspiring homeowners.
It is expected that Treasury and the Housing ministry will push for its implementation this year. Already, the government has registered the Kenya Mortgage Refinancing Company that will lend to the mortgage industry.
2018 saw many developers and property owners lose their real estate investments to government-led demolitions. Most of the properties demolished were those built on riparian land and road reserves.
To prove that the demolitions are not stopping anytime soon, on December 13, 2018, the brand-new, multi-million-shilling Grand Manor Hotel in Gigiri, was brought down by government bulldozers.
However, Association of Construction Project Managers chairman Nashon Okowa says although demolitions will not stop soon, the government should carry out due diligence before demolishing any property.
“Demolitions should start with investigations and not the other way round. Those who approved buildings fraudulently should also be held accountable,” he said.
Bleak prospects for construction loans
Industry players say property developers did not get “meaningful” financing from Kenyan banks in 2018. This forced them to look for finances outside. They don’t expect the situation to improve much in 2019.
In the run-up to the 2017 General Election, Central Bank of Kenya Governor Patrick Njoroge released a report that indicated that local construction companies were among the top bank loan defaulters.
Dr Njoroge said that real estate owed commercial banks about Sh3.9 billion in bad debts and some of the debts have not been cleared yet.
“A lot of these relate to delayed payments by both the national and county governments...,” he said.
Interest rate cap introduced in 2016 has also made it difficult for banks to lend to private developers, or the private sector in general.
Even after International Monetary Fund advised Kenya to review the capping on interest, in August 2018, the National Assembly’s Finance Committee dropped its earlier decision to amend the Finance Bill, 2018 to require banks to calculate interest based on the now-defunct Kenya Banks Reference Rates (KBRR).
Instead, the committee amended the Finance Bill again, reverting to using the Central Bank Rate (CBR) as the base lending rate, rejecting Treasury’s proposal for complete removal of interest rate cap.
This means there will still be not much lending to the real estate sector.
More smart buildings and virtual offices
According to Deloitte, real estate is headed for a big “makeover”. They say demand for smart buildings will create a new twist in the real estate market in Kenya. In 2018, more buildings embraced the smart building technologies, winning them awards in the process. Smart buildings like Britam Towers (Upper Hill), boasting speed lifts, and Prism Towers, with a peculiar shape, will define the smart buildings model.
In relation to new technologies and creativity in the office market, co-working spaces also continue to gain popularity and the “Internet of Things” is becoming a competitive advantage in real estate.
In 2019, we expect to see more co-working spaces. Already, Britam Towers, the tallest building in the region and second tallest in Africa, has some space for co-working clients where Regus, a global leader in offering fully serviced office spaces, virtual offices and co-working spaces, has set up base.
Fintech and mobile app technology
Fintech has made rapid inroads into the Kenyan economy and real estate industry, offering innovative solutions. More real estate-related apps are expected to come up in 2019 as mobile app technology continues to prove to be the next big thing when it comes to buying basically anything.