Property developers shy away from new projects in Nairobi

Construction workers building a house in Westlands, Nairobi area on February 11, 2021. [Stafford Ondego, Standard]

The value of buildings approved for construction by the County Government of Nairobi last year declined by Sh54 billion as investors scared by the pandemic took a wait-and-see approach, data from the national statistician shows.

This was a drop of slightly over a quarter to Sh153.6 billion compared to buildings worth Sh207.6 billion that were approved by the county the previous year, according to data from the Kenya National Bureau of Statistics (KNBS).

Commercial buildings - such as offices, retail stores, factories and restaurants - recorded the highest decline of 42.6 per cent, or Sh33 billion, compared to 21 per cent for the residential buildings.

Johnson Ndege, a development management consultant at Ollah ATP LLP, said most of the development plans by key investors were suspended as they weigh the economic situation.

“And that was seen across even other allied real estate markets. People who even had approvals and wanted to construct slowed down,” he said, noting that most of the freeze was in the second quarter.

Even before Covid-19, the market had a glut of commercial space, which was aggravated by working from home.

Businesses were struggling, so those with leases were not able to pay and few were taking up spaces, leaving a lot of vacancies in the market.

“Would-be investors were able to clearly see spaces that are not being taken up on top of existing oversupply, thus the slowness of getting into the market to put up more,” Ndege said.

Real estate contributed the fourth-largest share of bad loans between October and December 2020 after transport, agriculture and financial services, according to a report from Central Bank of Kenya (CBK).

Non-performing loans – those not serviced for more than three months – increased by 6.4 per cent during the period to Sh61.4 billion from Sh57.7 billion in the third quarter.

In addition, real estate was among the sectors that benefited significantly from the loan restructuring that was initiated by banks to give businesses that had been adversely affected by the pandemic some breathing space.

The slowdown started months after the country recorded its first case of Covid-19, with financial markets roiled by the announcement.

In the months of June, July and October no building was approved by the County Government of Nairobi.

However, towards the end of the year, construction activities began to pick up as the containment measures were gradually eased.

Unlike other sectors that posted negative growth in the second and third quarters, real estate grew by 2.3 per cent and 5.3 per cent during the respective quarters.

In the residential segment, the value of buildings approved declined by 21 per cent, or Sh29 billion.

However, the performance was better than that of commercial, buoyed by government-driven initiatives such as the affordable housing projects.

The lower end of residential development was still active as demand was created by the floating middle class that scaled down to cheaper houses after being laid off, said Ndege.

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