Kenyan Real Estate Sector is Poised for Rebound in 2018

By Vera Shawiza / January 12, 2018 | 6:10 am



Kenyan Real Estate Sector Set Poised for Rebound in 2018

Kenya’s real estate sector is expected to rebound this year after experiencing a slowdown in 2017 due to political uncertainty attributed to the prolonged electioneering period forcing investors to be cautious in making purchase decisions.

The sector was further constrained by oversupply in some segments such as the commercial office, and credit constraints due to the interest rate cap that resulted in a slower credit to the private sector growth from a five-year CAGR of 14.4 percent to a low of 2.4 percent as at October 2017.

Development activity reduced evidenced by the 18.4 percent reduction in the value of building approvals in Nairobi between January and July 2017 to 149.5 billion shillings from 183.2 billion shillings during the same period in 2016.

According to Cytonn, real estate will recover in 2018 due to high housing demand improved infrastructure and expanding the middle class.

“Investors, however, have to conduct research to identify the niches in the market given the increased focus by institutional developers, which, while clearly an indication of growth, will result in stiff competition as clients and investors demand quality developments,” observes Cytonn.

Further, they cite government incentives to spur affordable housing development; growing businesses creating demand for office and retail space.

The value of building approvals reduced by Sh33.7 billion between January and July 2017 to KSh149.5 Billion.

Capital appreciation in Nairobi and its metropolis averaged at 6.5 percent in 2017 from 18.0 percent in 2016 and thus the real estate sector recorded a total return of 14.5 percent in 2017 compared to returns of 25.8 percent in 2016, showing a slow-down in real estate operators’ performance.

“The slowdown in performance was as a result of a steep decline in capital appreciation brought about by stagnated land and property prices indicating slowed demand in 2017,” said Elizabeth N. Nkukuu, CFA, Cytonn’s Chief Investment Officer.

Nkukuu added that developer returns, however, remain high at an average of more than 25.0 percent given that real estate is a long-term investment, with a capital appreciation of 17.4 percent over the last 6 years.

Residential Sector

Despite the setback in 2017, we expect the residential market to pick up in 2018 especially in the mid and low mid end segments as investor appetite for the same continues in a bid to curtail the housing deficit while also gaining impetus from the expected government’s affordable housing initiative and probable increase in credit to the private sector, if the interest rates cap law is revised, which is set to encourage more activity from the developers’ side,” said Johnson Denge, Cytonn’s Real Estate Manager.


Commercial office Sector

“The opportunity in the sector lies in Grade A office space, with 10.0 percent yields, as it accounts for only 10.0 percent of office space in Nairobi and in serviced offices which have high yields of 13.4 percent compared to conventional office space at 9.2 percent,” added Mr Denge.

Retail Sector

Cytonn expects reduced development activity of malls in 2018 due to the current large supply.

“However, our outlook for the sector in 2018 is positive as the sector continues to attract both local and international retailers driven by a conducive macro-economic environment, with an average GDP growth of above 5.0 percent over the last 5-years, a low retail penetration rate of 35.0 percent that serves as an incentive for formal retailers compared to a formal retail penetration of 60.0 percent in South Africa , and closure of spaces occupied by underperforming retail chains such as Uchumi and Nakumatt, hence opening up an opportunity for other retailers in the Kenyan market.”

Hospitality Sector

The sector is expected to recover in 2018 supported by increased international arrivals due to sustained demand for business and tourism travel, increased government incentives, increased marketing efforts by the government and the industry players and a stable macroeconomic environment.





About Vera Shawiza

Vera Shawiza is Soko Directory’s in-house journalist. Her zealous nature ensures that sufficient and relevant content is generated for the Soko Directory website and sourcing information from clients is easy as smooth sailing.Vera can be reached at: (020) 528 0222 or Email: info@sokodirectory.com

View other posts by Vera Shawiza


More Articles From This Author







Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2020
  • January 2020 (272)
  • February 2020 (310)
  • March 2020 (390)
  • April 2020 (321)
  • May 2020 (335)
  • June 2020 (327)
  • July 2020 (334)
  • August 2020 (276)
  • September 2020 (180)
  • 2019
  • January 2019 (253)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (319)
  • 2018
  • January 2018 (291)
  • February 2018 (213)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (185)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950