Building plan approvals drop in subdued property market

Ongoing works at the Business Transformation Project that will entail convergence of all Standard Group newsroom operations across all platforms. It will involve the convergence of the commercial functions, the creation of a new organisational structure to reflect the new functions, processes and roles, change of titles, and appropriate alignment of support departments. Picture taken on Wednesday Sept 8, 2020. [Jonah Onyango, Standard]

The value of approved building plans has fallen to the lowest level in the last three years, a new report shows.

According to the Financial Sector Stability (FSR) Report, 2020 released by Central Bank of Kenya (CBK) last week, approved actual building plans fell to Sh2.33 billion between January 2019 to June 2020 compared to Sh2.45 billion in 2018 and Sh2.81 billion in 2017.

This was despite an increase in the value of approved plans to Sh1 billion in the first two months of this year on the back of the government’s affordable housing initiative, and the repeal of the interest rate cap last November.

The drop came amid a subdued real estate sector in the last year that has now been worsened by the Covid-19 pandemic.

“The demand for property was subdued due to slow economic growth, especially for middle and high-income earners,” said the FSR.

The report, produced by CBK in collaboration with the other financial sector regulators, assessed the global and domestic macro-financial developments and risks to the Kenyan economy and on the stability of the financial sector.

It also cited the Hass Consult Limited All Types Property Index, which showed that property prices fell by 3.5 per cent and 1.2 per cent for selling and rental prices in 2019 compared to 1.9 per cent and 1.6 per cent increase in 2018, respectively.

Financing

“The supply and uptake of property have been affected in the past by slow economic growth, general election uncertainties, banking industry instability and interest rate controls that constrained lending to real estate sector,” the CBK report said.

In terms of real estate financing, credit from banks to the real estate sector grew by 3.8 per cent in 2019 to Sh395.18 billion.

Credit to the sector by pension funds grew at the same rate of 3.8 per cent to Sh238.65 billion.

The FSR warned that pension schemes and fund managers who have invested in buildings and land face liquidity risks and delays in settling member benefits owing to the slowdown in the property market.

Insurance contributed Sh84.07 billion in financing to the property sector, recording a growth of 1.8 per cent.

The report noted that other financing sources for real estate included mortgage finance companies, savings and credit co-operatives, capital markets, off-plan purchases and private sources.

However, real estate industry players dismissed reports of a slowdown in the construction sector, saying it was not “noticeable.”

Public Works Principal Secretary Gordon Kihalangwa said it was only the speed of the projects that had delayed especially with the onset of the Covid-19 pandemic.

“From where I sit, the construction industry continued effectively and I don’t see anything to stop it,” he said.

The PS spoke to Home & Away last week after an ongoing stakeholder engagement on the enforcement of construction laws.

He added that the National Construction Authority (NCA) provided guidelines on how construction sites would be managed and none had been shut.

“The building sector in this country is very vibrant. Even at the height of Covid-19 containment measures, buildings were completed or started,” Maj (Rtd) Kihalangwa said.

NCA Executive Director Maurice Akech concurred with the PS, saying the value chain – design, approval and construction – was very active.

He said at the approval level, the best place to understand what was happening was at the county level but at NCA, which issues compliance certificates, the slowdown was insignificant. 

“We (NCA) are at the apex where after getting all the approvals, you come and get the compliance,” said  Akech.

The year under review by the FSR saw the entry of the Kenya Mortgage Refinance Company (KMRC), which was established in 2018 to support the Affordable Housing Programme, part of the government’s Big 4 Agenda seeking to grow the mortgage market.

KMRC’s mandate is to provide long-term funds to primary mortgage lenders such as banks, microfinance institutions and Saccos to increase the availability and affordability of mortgage loans to Kenyans.

“The entry of KMRC in the market is expected to improve mortgage affordability, increase the number of qualifying borrowers and result in the expansion of the primary mortgage market and homeownership,” noted the report.

“The company will offer fixed rate long term loans initially at concessional rates to financial institutions.”