Multi-billion shilling real-estate projects launched amid sector woes

Dumptruck in action on a construction site
Developers continue to defy market sentiments with new and bigger projects breaking ground almost daily.

Just last week, two leading developers broke ground for hundreds of residential units while a leading global hotel chain sought to spread its footprint in the local hospitality scene.

The first was Centum Real Estate that broke ground for its Riverbank Apartments, a project that will consist of 160-units within the Two Rivers development complex near the country’s Blue Zone.

Construction of the first phase of the project comprising of 80 units commenced in the last week of July this year and will take 24 months to complete.

The multi-unit residential project comprising of a mix of one, two and three-bedroom units seek to take advantage of the buzz created by Two Rivers, the region’s largest mall.

In the same week, Chinese developer Erdemann Properties launched Phase Three of the Greatwall Gardens in Athi River. The housing project is set to have 288 units selling at an off-plan price of Sh2.9 million. The project is touted as a flagship Affordable Housing project in Athi River.

On Saturday, Mi Vida, a new residential project by Actis, a leading growth markets investor and Shapoorji Pallonji Real Estate from India held an open house where prospective investors sampled the amenities to their new housing project next to Garden City.

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Under the Sh12 billion joint venture, the two partners will deliver over 2,000 residential units with construction of the first segment set to commence in the third quarter of this year.

In the hospitality sector, Accor Hotels also announced the entry of the first M Gallery Hotel Chain Collection in Gigiri, Nairobi, to be opened by the first quarter of 2021.

The hotel will be developed in partnership with Jit Group, a local investment firm and will grow the group’s footprint in Nairobi to five properties that include Fairmont the Norfolk in, Ibis Styles Hotel and Mövenpick Residences and Hotel.

Shrinking bottomlines

While the real estate sector in Kenya continues to expand, it is not lost on observers that many developers have been left holding the short end of the stick. Construction costs continue to skyrocket and bottom lines keep on shrinking.

The sector has racked up the highest stack of non-performing loans as financial institutions continue to give the sector a wide berth. According to the Central Bank of Kenya’s Quarterly Economic Review, the bad loans book had increased by 15.8 per cent toward the end of 2018.

The poor state of affairs in the sector has seen auctioneers busy repossessing houses that are then sold cheaply. Depending on whom you ask, however, the fortunes in the sector will keep on rising.

Samuel Kariuki, Managing Director of Centum Real Estate says their new Two Rivers housing project has all the parameters of a profitable venture. “Riverbank apartments is a significant milestone as it is the flagship residential node of Two Rivers, having surpassed the minimum pre-sales threshold of 30 per cent prior to groundbreaking,” he says.

That magical number in pre-development sales portends good tidings to any developer especially those dealing in massive, capital-intensive ventures.

Centum falls in this category with hundreds of units in different phases of development such as Cascadia Apartments located within the precincts of Two Rivers, Awali Estate, 1255 Palm Ridge, Mirabella Villas and Bella Vista Apartments.

According to investment firm Cytonn, choosing the right location and diversifying one’s portfolio helps spread the risks associated with real estate investments.

What works?

As an example, the firm says mixed use developments create operational synergy across the various themes as they complement each other thus boosting the performance and investor returns.

“Having multiple components in the development creates multiple revenue streams that help to diversify the risk of a project. In case uptake for one of the themes is low, the developer or property manager will continue to receive revenues from the other themes,” says Cytonn in its Nairobi Metropolitan Area Mixed-Use Development Report.

The report adds that such developments allow the developer more latitude to alter uses from one theme to another, for instance from residential to office if zoning laws allow.

In terms of location, the two residential projects mentioned on the outset are located within Nairobi’s satellite towns of Ruaka and Athi River respectively, regions with unique characteristics. The purchasing power of those within the two regions varies greatly.

Realtor reports have in the past one year put the two regions among the high-yield locations. For example, high-end neighborhoods such as Gigiri, Runda, Rosslyn, and Kitisuru where Centum developments lie host Nairobi’s middle and high-end populations willing to pay a premium for class and extra amenities.

Investor returns here rage between 9 and 11 per cent where an acre goes for close to Sh85 million. On the other end of the spectrum is Athi River where Erdemann is putting up the new Greatwall Gardens and where an acre fetches Sh12 million. So are the chips down in real estate? Only time will tell.

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Greatwall GardensAccor HotelsCentral Bank of Kenya