Nairobi’s real estate sector slows by 16pc

Close up of plans and digital tablet on building site

The value of building plans approved by the county government of Nairobi dropped by 16 per cent in the first five months of this year compared to the same period in 2016.

Total value dropped to Sh105.7 billion from Sh126.3 billion last year, pointing to slowed construction activities this year. The reduction could be attributed to heightened political campaigns that have seen investors hold back their cash.

According to the latest figures by the Kenya National Bureau of Statistics (KNBS), both residential and non-residential development suffered a decline.

However, the month-on-month value went up from Sh21.8 billion in April 2017 to Sh22.1 billion in May. A number of factors might have contributed to the slump, including a constrained economic performance.

A report released recently by the Kenya Bankers Association (KBA) showed that house prices slowed in the second quarter of this year on the back of a dip in economic performance.

The Housing Price Index showed that house prices increased by a marginal 0.98 per cent, the lowest increase since the third quarter of last year.

Prices grew by 1.73 per cent in the same quarter last year. In the first quarter of this year, they went up by 1.1 per cent.

The sluggish growth, said KBA, reflected the subdued performance of the country’s economy, particularly following reduced credit extension to the private sector.

“In real estate, the impact of the constrained private sector credit is two-fold. On the one hand, it hinders demand of the housing units in the market since the purchasing power of the potential buyers has been squeezed. On the other hand, it limits the supply of the units to the market since project finance to the developers has been limited,” said KBA Chief Executive Habil Olaka.

Overall, the construction sector suffered during the period in what analysts have attributed to a wait-and-see approach taken by investors in the run-up to the General Election. As a consequence, both the production and consumption of cement - a key component in the construction and building industry - declined during the period.

According to KNBS, in its Leading Economic Indicators, June 2017 issue, the quantity of cement produced dropped from 509,589 tonnes in May 2017 to 500,109 tonnes in June. It was the same trend with its consumption, which contracted from 497,087 tonnes in April to 457,937 tonnes in May.

Real estate has been touted as one of the best performing sectors of the economy, with stakeholders citing increased demand for both commercial and residential houses.

However, there has also been talk of the sector suffering from an oversupply, which has resulted in a drop in prices.