The real estate sector fall extends into second half of the year

Kenya’s real estate sector recent deterioration has extended into the second half of the year as the culmination of oversupply and delayed construction permits hold back investor returns.

While data from the Kenya National Bureau of Statistics (KNBS) quarter-two economic bulletin is indicative of an industry rebound, findings from the Cytonn Real Estate quarter three sector review are revealing of a continued industry slump.

The delayed processing of construction permits and the break-down of county based electronic certification infrastructure has been pinned to the bloating of costs to developers.

“Delays in the approval system ultimately lead to unnecessarily high development costs for private developers,” noted the report in part.

Further to the delayed permits, a notable number of counties including Nairobi, Kiambu, Mombasa and Kisumu have suspended their planning committees to exacerbate delays to the authorization of real estate projects.

In a means to remove the clog on approvals, the Architectural Association of Kenya (AAK) has written to the County Government of Nairobi urging for the convening of a technical committee with regards to the review of an approximated 538 pending applications.

Meanwhile, market performance remains characterized by a glut in retail and commercial offices even as the sector remains locked in the jaws of a worsening credit crunch.

Nevertheless, rental returns on apartment units have remained favorable growing by 5.2 percent in the quarter. The attraction of rental yields is however against falling purchase prices as developers slash prices in order to attract clientele.

The average cost of an apartment unit per square feet (sq.ft) has for instance slumped by Ksh.628 to Ksh.137, 421.

Similarly, the valuation of detached units has kept with the slide with growth having dipped to 4.5 percent in the three months to September from 5.3 percent last year.

“Our outlook for the residential market remains neutral. We expect the current financial environment to continue exerting pressure on residential prices, and thus, we expect the appetite for the rental market to continue growing,” the report added.

The retail and commercial office sector which held an oversupply glut in excess of two and five million sq.ft respectively at the end of 2018 continued to post flat growth as the two segments took in a further hit from declining occupancy levels.

This is as developers continue to offer rent-free grace periods to tenants in an attraction/retention means.

In the overall, real estate investment activities have slowed down in the period to see an annual decline in the asking prices for land at 0.3 percent.

Even so, Nairobi’s Central Business District ‘dormitory towns’ such as Ruiru and Limuru have registered the highest annual capital appreciation at 6.1 percent to mark their sustained attraction to both developers and residents.