MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.47
Real estate slowdown leaves banks with rising pile of bad loans
PERIOD: July 11 to 17, 2016
11/07/2016 : The Business Daily, Pg. 4
- Kenyan banks reported a steady rise in pile of bad debts in the first three months of the year saddled by a slowdown in the real estate sector and increased retrenchment of formal sector workers , according to the newly released official data
- Gross non-performing loans (NPLs) rose 15.8pc to Sh170.6b in March compared to Sh147.3b in December, the CBK says in its first quarter industry report.
- “Real estate sector recorded the highest increase in NPLs over the quarter by Sh5.9b or 42.3pc. This is attributed to low housing units,” the CBK report says.
- The 42.3pc rise in property market’s NPLs to sh19.7b indicates that developers have satisfied a large part of the pent-up demand for commercial and residential housing.
- The real estate boom that has been underway for more than a decade has attracted major investments ,with Nairobi alone approving more than 250 buildings plans valued in excess of sh18b in each month
- The building boom has been driven by insurers, investment firms and wealthy individuals, some of whom have taken large loans to undertake multi-billion-shilling projects in the major towns
- A slowdown in property market risks to specifically hurt lenders with a huge exposure in the industry
- HF group, one of the biggest financiers in the real estate sector, says it derives most of its earnings from that industry through the provision of mortgages and project finance
- The lender’s gross bed debt rose to sh4.5b in march from sh4b in December ,mirroring the growth of doubtful loans across the banking sector
Bamburi sheds 71 employees in new business strategy
11/07/2016 : The Business Daily, Pg. 19
- Bamburi cement-maker reduced its workforce by 71 employees last year following lay-offs and voluntary early retirements as many firms resized to further tighten jobs market.
- It paid out Sh192m to send home the affected employees, according to the recently published report
- The cement-maker joins a growing list of companies that have cut staff numbers or imposed recruitment freeze, including Standard Chartered, Kenya Airways, Equity Bank, Co-op Bank and Uchumi Supermarkets.
- The layoff reduced its workforce to 851 employees from 932 the previous year and 936 in 2013.
- Steel industry also reported the loss of 2000 jobs last year following a slump of commodities
- The National treasury was forced to introduce higher tax measures for metal imports this year in efforts to protect the industry from further job losses.
- The corporate actions put into focus government numbers which show the economy created 850,000 new jobs last year at a time when several companies are cutting back and the state has announced a recruitment freeze. Read more
Sameer ventures into real estate amid decline in tyre business
12/07/2016 : The Business Daily, Pg. 8
- Tyre manufacturers Sameer Africa is set to launch a real estate division to develop commercial property in an effort to diversify from its core business which has recorded a sharp decline
- The Nairobi securities exchange listed firm has seen a major drop in sales and profitability in recent years after losing a big market share to cheaper tyre imports from China and India
- Sameer said it will use its land holdings to build several real estate projects, predicting that its tyre business is likely to suffer further in coming years
- Among the planned projects are a modern office block in Nairobi’s Westlands and a shopping mall and hotel along Mombasa road
- It also plans to build more warehouses for leasing
- It is finalizing plans for the construction of the 15000 square metre mall along Enterprise Road at its factory premises in Nairobi Industrial Area
- The group’s land holdings are valued at over sh2.3b and investment property at sh1.6b are available for re-development. The fair value gains of sh3.5b have not been factored in the company balance sheet. Read more
UAP Old Mutual Tower opens for business
14/07/2016 : The Daily Nation, DN2, Pg. 3
- The UAP Old Mutual Tower officially opened for business last week with 50pc subscription despite earlier fears of over-supply
- The 163m high, 33-storey development is located in the upmarket Upper Hill commercial district
- It is offering a lease 300,000 square feet of Grade A office space and 25000 square feet of retail space
- Demand by foreign investors seeking to make Nairobi the base of their operations in Africa has boosted the office market space market
- The building’s management is in advanced discussions with other interested tenants to fill the remaining office space, whose offering has been capped at a minimum space of 3000 square feet
- The building has taken 5 years to complete at a cost of Sh4b.
Land transactions to remain frozen in 37 counties
14/07/2016 : The Daily Nation, DN2, Pg. 3
- Land transactions in 37 counties will remain frozen after the government delayed in appointing land control boards to approve the leasing and sale of agricultural property
- Land Cabinet Secretary Prof Jacob Kaimenyi on Friday appointed land boards in 10 counties after their disbandment in late April to curb widespread corruption
- This means the remaining counties will wait longer to have their boards, which approve the buying, selling or sub-division of agricultural land in areas under their jurisdiction
- The freeze in agricultural land transactions is also hurting other critical sectors like banking and real estate on reduced lending and property development respectively
Corporates in partnership to bring down building costs
14/07/2016 : The Daily Nation,DN2, Pg. 4
- In an attempt to reduce the housing shortage, Commercial Bank of Africa (CBA) has partnered with KOTO housing and Bamburi Cement to provide affordable
- According to the terms of the partnership, CBA will offer 105 pc financing and access to experts to help the legal and statutory requirements, KOTO Housing will use its lightweight panels to build affordable permanent houses within 30 days, while Bamburi Cement will help by providing architectural quantities an, BQs, on-site technical support and access to building materials through its partner outlets.
- The partnership will see the construction of a starter one-bedroom house at a cost of sh500,000 with the new owner having the choice to build incrementally to four bedroom maisonettes at a cost of sh.4.5m
Sh16bn roads expansion plan to unlock heavy Nairobi traffic
14/07/2016 : The Daily Nation, Pg.33
- The government has started plans for the expansion of sections of Waiyaki Way , Mombasa Road and Uhuru Highway in a build to ease traffic flow in the capital
- Chinese engineering group China Wu Yi was yesterday awarded a sh16.4 contract for expansion of a 25km stretch of Waiyaki Way starting from ABC place to Maai Mahiu turn-off on Nairobi –Nakuru Highway
- The Kenya National Highways Authority(Kenha) also revealed plans to expand a 12.3km stretch from Mombasa Road-Likoni Road Junction all the way to ABC place in Waiyaki Way
- Negotiations for financing of the likoni road to James Gichuru junctions are still on-going
- The upgrade is part of World Bank-funded mega roads expansion project to de-congest Nairobi.
- It also involves the conversion of the 45.2km road between the Jomo Kenyatta International Aiport(JKIA) and Rironi into a superhighway.
Lafarge asked to give up its stake in Portland Cement
14/07/2016 : The Standard, Home & Away, Pg. 2
- Lafarge Holcim, a majority shareholder of the East African Portland Cement Company(EAPCC), has been asked to either to share its share or acquire the firm
- According to an outgoing CEO Kephar Tande, Lafarge ownership of Bamburi Cement, EAPCC’s competitor, has led to a conflict of interest.
- “The ideal position would be that EAPCC and Lafarge are either merged or Lafarge has no stake in EAPCC,”said Tande
- The Competition Authority of Kenya has since been probing the unique arrangement, to see if there is a possibility of price influence
Commercial Bank of Africa announced its partnership with Bamburi Cement to provide affordable housing ranging from Kshs 0.5 mn to Kshs 4.5 mn through a mortgage arrangement
17/07/2016 : Cytonn Weekly Report No. 28
- Commercial Bank of Africa (CBA) announced its partnership with Bamburi Cement to finance mortgage borrowers, with the amount of each individual mortgage to be determined by the house typology that the buyer chooses.
- The housing units that will be constructed by Koto Housing using the Expanded Polystyrene Panel (EPS) technology will be completed within 30 to 45 days, with Bamburi providing the cement in the construction. Homebuyers will choose a house design from 30 architectural drawings and have their units completed even before they make their first loan repayment.
- The move seeks to solve the housing deficit approximated to be about 200,000 housing units per year as well as encourage mortgage uptake, with current number of active mortgage account less that 25,000. The house prices range from Kshs 0.5 mn to Kshs 4.5 mn for a one roomed and a 4-bedroomed house, respectively, with a maximum payment period of 25-years.
- Assuming an interest rate of 18.0% p.a. with a maximum repayment period of 25-years, a buyer wishing to buy the one-roomed unit will have to make a monthly payment of approximately Kshs 7,600, whereas one opting for a 4-bedroomed house under the same arrangement will make monthly payments of approximately Kshs 68,300.
- Bamburi Cement will offer site-support for all the units developed under this project and hence the homeowners will not have to visit architects, regulatory authorities or be at the construction sites.
- Generally, this arrangement is affordable to a majority of the newly employed who earn as little as Kshs 25,000 net pay, meaning that 30% of their monthly earnings will be adequate to service the mortgage loans for a single roomed house.
- However, what is not clear to the market is
(i) the location where this product will be rolled out to the market.
(ii) the size of the units to be developed, to enable buyers to understand their pricing point on a square metre basis.
- Developers are now targeting to put up retail developments in the counties so that they tap into the rising disposable incomes in the counties that will attract shoppers into the malls. This comes after the possibility of oversupply of mall space in some nodes evidenced by low uptake.
- According to cytonn ‘s retail report, Mt. Kenya Region outperformed the Nairobi Metropolis with a yield of 10.1% against 10.0%. The rate of urbanization at 4.3% is also another factor that cannot be overlooked, since other towns apart from Nairobi are also expanding in terms of population and consequently targeting the middle income earners. Read more