Property sector’s highs and lows of 2013

Kenya: 2013 was a good year for the land and housing sectors, and a controversial one as well on several fronts. PETER MUIRURI looks at the property sector’s ups and downs in the year that was

The year 2013 was full of mixed fortunes for players in the real estate sector. Depending on which side of the divide you were, the glass was either half full or half empty.

The Good

The year began with the usual jitters that accompany any impending General Elections. Investors exhibited a wait and see attitude as the hotly contested polls got underway. However, the industry in general remained resilient despite an election petition and its contested outcome.

Nairobi was proving to be one of the cities to watch in 2013 following a Knight Frank report released at the end of 2012 that named Nairobi as one of the emerging global property markets having the most appreciating prime rentals.

As per the dictates of the Constitution, the new regime of Uhuru Kenyatta and William Ruto appointed a leaner government of 18 cabinet secretaries as opposed to the 42 in the previous Grand Coalition government. That meant combining certain dockets in a single ministry.

Charity Ngilu was appointed to head the merged ministry of Lands, Housing and Urban Development. The move was welcomed by developers who saw the new ministry as a one-stop shop for fast tracking all matters regarding development approvals. Whether Ngilu has performed the gigantic task of streamlining a sector that gave other ministers sleepless nights is another matter altogether.

Devolution also brought with it new sheriffs in town —governors. In a bid to prove their worth, a number hit the road running promising to turn their respective counties into the best managed entities. 

Machakos County Governor Alfred Mutua belongs to this category. His move to hold an investor conference in Machakos was a wakeup call to other governors who are playing catch up. He even got the president to perform a groundbreaking ceremony for a new city in Machakos! Again, the jury is still out there as to whether his promises — including one to give free land to investors will see the light of day.

 Investor confidence was further boosted in July as Home Afrika, developers of the high end Migaa Golf Estate listed on the Nairobi Securities Exchange under Growth and Enterprise Market Segment reserved for small and medium sized companies.

The month of July also saw Garden City, Kenya’s first integrated residential, retail and office development along Thika Superhighway granted Vision 2030 flagship project status.

The Bad

The vibrant real estate sector also comes with a price. While developers continue to offload their properties into the market, many Kenyan are still finding it difficult to own a home of their own owing to high cost of borrowing.

The Hass Property index released in conjunction with The Mortgage Company continues to highlight the discrepancy between the Central Bank’s base lending rates and those passed on to the consumer by financial institutions.

As an example, their review of the first quarter of 2013 revealed that while Central Bank rates stabilised at 9.5 per cent, some commercial banks were still lending at 22 per cent.

“With the Central Bank Rate stabilising at 9.5 per cent, we would normally expect a four per cent spread, meaning rates of 13 to 14 per cent, and yet the average is still next to 18 per cent,” said Carol Kariuki, The Mortgage Company managing Director while releasing the report.

As the year drew to a close, some lenders lowered the rates to an average of 13.5 per cent against a Central Bank rate of 9 per cent. Still, many banks pegged their rates at 18 per cent further pushing away potential homeowners.

Compounding the situation further was the rising land prices, mainly driven by demand especially in Nairobi and its environs. The situation was made worse by speculators who hoard the commodity waiting to sell to the highest bidder.

As devolution started to take shape, some governors rubbed the property market the wrong way by issuing edicts that prohibited all land related transactions within their respective counties.

Kiambu’s William Kabogo’s directive to halt some transactions ostensibly to protect the coffee and tea plantations that were slowly giving way to residential estates did not go down well with some developers.

Many were of the opinion that no farmer will turn down an offer of almost sh20 million for an acre of coffee, an amount he may never earn in his lifetime through the cash crop.

David Nkedianye of Kajiado also froze land transactions for six months in order to put in place proper mechanisms for such dealings. Both counties have been earmarked by developers who hope to cash in on the need to house Nairobi’s ballooning population.

While the vision behind such actions is noble — the lands sector is in serious need off streamlining, such delays may negatively impact potential developers, as land is the main asset used as collateral against future borrowing.

2013 also saw the return of the dreaded bulldozer, this time in Langata. In July, a number of homes were demolished to pave way for the Southern Bypass, now under construction.

The Ministry of Roads and Infrastructure insisted the houses were on a road reserve. As expected, the affected gave a conflicting account. While Kenya National Highways Authority said notice to demolish the homes had been issued, the victims insisted no such notice was issued.

The Ugly

Two incidents blighted the country’s image as a safe haven for foreign investors. In early August, a large fire destroyed the arrival section of the iconic Jomo Kenyatta International Airport.

While sabotage and terrorism were ruled out, the fire cast a dark shadow on the country’s disaster preparedness especially when it comes to securing such vital installations.

Then came the Westgate Mall attack by suspected Al Shabaab militia in September that destroyed a huge part of the complex. Some experts in the built industry opined that the fortress design of the mall made it a perfect target for the terrorists.

But the year’s showstopper was the tiff between cabinet secretary Charity Ngilu and National Land Commission chairman Muhammad Swazuri.

The two clashed in public with Ngilu claiming her ministry has the executive powers over land administration especially on the issuance of title deeds, formation of county Land Management Boards and resettlement of forest evictees. On the other hand, Swazuri accused Ngilu of illegally appointing Peter Kahuho as acting director general of lands; a position he claimed does not exist in law.

In what sounded like music in Ngilu’s ears, The Commission for the Implementation of the Constitution weighed in on the matter saying Swazuri did not have express powers to sign the title deeds. The public watched in amazement as the two tore into each other in front of the Senate Lands committee.

 The two will be the people to watch in 2014 as far as lands management is concerned.