Year of mixed fortunes for real estate

In January, the real estate industry and its allied sectors looked set to shine even brighter, but as the year closes, it is clear that it has been one of mixed fortunes, writes FERDINAND MWONGELAWhen the year set in, the predictions for the real estate sector and the construction industry were mostly favourable, with many foreseeing a continued boom in construction and others a continued rise in the property prices. All this was good for developers. Buyers, on the other hand, prayed for a slow down in prices. As the year wore on, all these came to pass along with a few twists. There were increased court cases involving major developments like the Tatu City and a few others, some of which are still in court. At the same time, the year witnessed a few great deals, then along came the rising interest rates all blamed on the ‘dollar’ and everything went to the dogs, well, nearly so. Due to the recent demolitions, more investors are now using professionals in construction and property transactions. [Photo:Jennipher Wachie/Standard]In the Hass residential property price index for the first quarter of 2011, it was reported that asking prices for houses rose slowly between January and March compared to previous years. At the same time, there was mixed results for rents with those for town houses going down slightly. The second quarter report showed that asking prices slowed down further. The average rise in asking prices in this period, April to June, stood at 1.9 per cent, down from 4.4 per cent in the first quarter of the year. Rent prices remained nearly static. "Rent now represents a single island of price stability, being the only item in the household bill that is not spiralling upwards," said Farhana Hassanali, Hass Consult’s Property development Manager. The third quarter results answered prayers by buyers, with a dip in rental and selling prices. However, Farhana Hassanali contended at the times that the property sector was still a strong investment option. Although the fourth quarter reports are not yet out, what is expected is almost predictable, considering the rising interest rates on mortgages in the last two months as the financial sector struggled to control the slide of the shilling against major world currencies. Election year"It (the year) was very good until September/October when the rates went crazy," says George Laboso, Head of Mortgage Services, Family Bank. He, however, points out that this has only slowed down the last two months and has not significantly affected the mortgage, and by extension the construction sector. "People want to see what is going on," says Laboso adding, "Rates will definitely come down as the market has started stabilising in the last two weeks."Laboso predicts that the market will have stabilised in about three to four months into next year. However, being an election year, it may have unique challenges, which could make investors hold back.This year also saw a few other major moves that rejuvenated interest in the market. Mid this year, Delta Centre in Upper Hill was sold to the World Bank and the International Finance Corporation by Delta Corp East Africa. The 21-storey office complex went for Sh2.2billion, one of the single largest property transactions in the industry. Timothy Mutisya of Lloyd Masika, the man who brokered the deal, is all praise for the year, and for a good reason. "The year has been very good in terms of property, with developers getting good prices," he said. He also, however, points to the rising rates in the last quarter of 2011 as having thrown a spanner in the works. "The high interest rates are scaring off people," he said, adding that the tail end of the year saw fewer sales. It is not all lost, however. "This is only a temporary condition. We expect that by June, things will stabilise," he said. The Architectural Association of Kenya Chairman Stephen Oundo argues that the rise of the major world currencies and the slide of the Kenyan shilling did not significantly affect developments. According to Oundo, these developments had already secured funding by the time the value of the shilling depreciated. ProfessionalsApart from this, Oundo is upbeat about the construction sector’s prospects next year, based on gains made this year. "More people are opting to use professionals," he said, pointing out that such cases like the recent demolitions of properties has made investors more conscious on the need to use qualified professionals. He also says developers have embraced regulations such as those of putting up site signboards showing the particulars and approvals for the particular project. On legislation, Oundo says the year has seen strides in several Bills, one of them being the Construction Authority Bill that will see the sector regulated more closely. Among the requirements in the Bill that is yet to be passed is that contractors have on board at least one director with a minimum of a higher diploma in construction. Oundo says this will aid in curbing quacks. The Architect and Quantity Surveyors Bill has also seen progress this year. The latter part of the year, however, witnessed trepidation, with eviction notices and bulldozers hanging above homeowners in some parts like the proverbial sword of Damocles. The debate continues over who was right or wrong. In the coastal town of Mombasa, the year is ending on high note according to Mwenda Thuranira, Chief Executive Officer of Myspace Properties, a Mombasa-based property development company. The company organises the Mombasa Homes Expo held twice a year as part of their operations and Thuranira says it has never been better. During the last expo held earlier this year, Thuranira says they recorded 67 exhibitors and 7,000 visitors. "We started with 30 exhibitors and about 2,000 visitors," he said. Legal frameworkBefore the entry of Myspace Properties on to the scene, the Coast property segment had been relegated to the backburner and perceived as prime only for holiday homes and luxury developments. According to Thuranira, this has changed, with more residential properties coming up and at the same time attracting interest from locals, especially in the December expo that majorly targets locals. While agreeing that the issue of land at the coast has always been thorny, Thuranira argues that this, too, has changed. "Land issues are there, but people have opened their eyes and land is being put into use," he said. This, according to Thuranira, is progressively avoiding the issue of absentee landlords as more people realise the value of their land. "All over the world, there is no property more valuable or that gains value as fast as one near the ocean," he says. At the same time, he sees more growth next year, promising bigger projects. "We now have the capacity to handle lower-cost housing projects of up to 2,000 units," he said. Thus, as the year ends, the real estate industry looks to 2012, pregnant with expectations, especially on the legislative front. The stabilising of the shilling is also hoped to bring a reprieve for mortgage borrowers.

Year of mixed fortunes for real estate

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