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HomeNews & ArticlesNews & UpdateMIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.54
MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.54
Low-cost building technology to bridge the housing deficit.
PERIOD: August 29 to September 4, 2016
1/09/2016 :Daily Nation, Pg.28
- It does not always have to be concrete, stone, bricks and mortar. There is a new frontier that builders, contractor and developers need to explore.
- IGS is a building technologies firm that ventured into the local market last month. Banks are not able to bring their costs down due to the time it takes to put up a housing project on average 18 months – a period within the cost of building materials like cement and labour escalates.
- As it is, building technologies firms have pitched tent in Kenya from where they are trying to fix the problem of demand for low cost housing and serve markets in the wider East Africa region. These include: IGS, Boleyn Magic wall panels and Koto housing, all of who leverage on Expanded Polystyrene Styrofoam (EPS) panels to deliver pre-fabricated building technologies.
- Government owned National housing corporation has also embraced this new wave of change with its locally manufactured EPS panels
- EPCO Builders limited which has been in the property market for the last 38 years has also introduced various innovative building technologies, the recent one being Aluminium foamwork.
- Overall, it is estimated that local developers get to save on between 20 and 25 per cent of the total capital injection.
- This is the new frontier that Kenyan builders, contractors and developers need to explore if they are to bridge the current housing deficit with affordable, decent high quality housing. Read more
Advantages of using EPS Panels
- Both EPS panels and Aluminum formwork are easy to assemble since they come precast from the factory.
- They are able to deliver housing units within a relatively short time since they require less labour.
- Builders to not have to dig deep into the ground since the materials are light in weight, thus a developer saves big on foundation slabs and foundation slabs and reinforcements.
- The amount of concrete that builders use on walls and flooring is drastically reduced.
Manual for funding green buildings
1/09/2016 : The Standard pg.26
- A green building is one that is energy and resource efficient, as well as environmentally responsible.
- The Kenya green building society raises awareness on the benefits of green buildings and supports the government to lead by example, as well as legislate and facilitate the adoption of green building practices
- Strathmore university is a beneficiary of subsidized funding for green building
- 3D floors grace-end home with rare looks
Lenders to build 20,000 housing units for police
01/09/2016 : The Daily Nation,DN2 Pg 2
- A consortium of four lenders will construct 20,000 houses for police officers through an arrangement that will see the government make regular payments to the financiers over a period of up to 15 years.
- The houses, which include bed sitters, one bedroom and three bedroom units, will cost between Ksh 18 and Ksh 20 billion in a mega taxpayer funded homes project that will take four years .
- Under the annuity financing deal, four financiers – shelter Afrique the African Development Bank, KCB Group and HF Group – will provide the construction with the money needed and receive repayment staggered over 15 years. Treasury cabinet secretary Henry Rotich last week said the new units would be set up across the country, starting with Nairobi. The houses represent a third of 60,000 additional units required to house police officers who have been forced to either live in snacks or share dwellings meant for single households according to official studies
China Firm puts up Ksh 10 BN housing Materials Factory
01/09/2016 : The Daily Nation,DN2 Pg 2
04/09/2016 : Cytonn Monthly Report – August
- Chinese conglomerate, China Wu Yi, is building a 10 billion housing materials plant in Athi River after bagging major tenders in the country.
- The factory, expected to be complete in June, will manufacture precast materials that will also be sold to other construction firms.
- The factory will sit on 30 acres of land off Mombasa road. It will include a pre-cast element plant, a display area, warehouse and a construction materials supermarket which will introduce materials from China, effectively making it a one stop shop for building materials.
- The supermarket will stock among other things stones, ceramic tiles, sanitary fittings, construction electrical fittings, lamps and kitchen furniture.
- The pre-cast elements will include solid wall panels, hollow core slabs, sandwich wall panels, faced panels, lift shafts. Staircases and foundation piles.
- Customers will be able to obtain the precast materials to fit their housing designs enabling fast and less costly construction. Read more
Cytonn reports Ksh 630 Million net profit
01/09/2016 :The Daily Nation, DN2 Pg 3
- Investment firm Cytonn has reported a Ksh 630 Million net profit for the last 12 months ending December 2015, driven by its investments in the real estate sector.
- The firm says it has 14 real; estate projects worth Sh 73 Billion in development on more than 1200 acres.
- These projects include The Alma in Ruaka, Situ Village and Amara gardens in Karen.
- Cytonn was founded in September 2014 by four former senior staffers at British American (BRITAM) asset Management (BAAM).
- The company recently announced plans to branch out to the counties through a franchise model patnering initially with real estate firms in Mombasa, Kajiado, KIambu, Machakos, Nakuru, Vihiga, Kericho, Migori and Trans Nzoia.
Bamburi Cement Blames high Interest rates for reduced Profits
01/09/2016 : The Daily Nation, DN2 Pg 3
- Bamburi Cement has attributed its reduced profits drop in construction activities related to high interest rate.
- The cement maker’s net profit for the six months to June 2016 declined by six per cent to Ksh 2.9 Billion following lower cement demand from the housing construction sector.
- High interest rates averaging 20% have hit the individual home builders which in turn saw a drop in cement demand.
- Fellow cement maker, Athi River mining, posted a net loss of Ksh 267 Million in the first six months.
- The company cited increased competition for its Tanzania unit from a new entrant for negative results.
What Loan caps mean for property Investors
01/09/2016 : The Daily Nation, DN2 Pg 3
- Property developers could be the biggest winners in the law on bank interest rates signed by President Uhuru Kenyatta last week.
- Players see a situation where property developers could get preferential treatment from banks, since they are considered low risk to financial institutions.
- This is bound to encourage developers to seek loans to build housing units to address the current shortage of over 200,000 units annually.
- Property developers also want financial institutions to lower the interest rates for mortgages further given that these types of loans are normally long term.
- Also Nairobi has been said to have an oversupply of commercials real estate in the recent past. Dr. Oundo, a Lecturer at University of Nairobi and a consultant with Roack Consult Ltd, foresees a situation where will be stabilized.
- Low interest rates will encourage expansion of businesses and starting of new ones. As a result, this will scale up demand for commercial spaces such as retail and office spaces that will start to fall. Read more
The gloomy future of real estate market.
01/09/2016 : The Daily Nation, DN2 Pg 3
- The latest House Price Index published by the Kenya Bankers Association for the second quarter of 2016 is a reason to be sceptical about investing in real estate and the future of the property market in Kenya.
- The 1.74 per cent increase of the HPI for the second quarter of 2016 compared to the 1.4 per cent rise during the first quarter reflected an uptick in house price, with the movement representing a not very promising future for the sector.
- The property market performance of the first half of 2016 follows three years of very mild price changes. The demand and supply market dynamics have not been subject to significant changes over the period. The supply has been in response to the broad demand characteristics in the market. The new units being put up are mainly targeting the middle-end of the market, with the lower-end experiencing supply constraints arising mainly from the tendency of developers inclining more towards renting than selling.
- Over the last few months, developers and market makers are focusing on projects around Nairobi where several satellite cities have been producing good returns after the Nairobi market stopped being a lucrative option. Unfortunately, the reality of the market is affecting these areas too. A good example is Mlolongo — the satellite town on Mombasa Road, which, according to available data and reports, has seen prices falling during 2016.
- People seem not to understand what is going wrong. Everybody keeps saying that there is a huge deficit of houses. There is a need of 250,000 houses annually when only 50,000 are built. So, when supply does not meet demand then prices should keep going up!
- The rule of supply and demand has been used inappropriately in Kenya. The truth is that there is a very big demand for housing. Maybe even more than the 250,000 houses per year.
- The reality is that the majority of houses that have been developed in Kenya over the last couple of years are not affordable to a majority of people. Market speculators using this “imaginary” deficit of housing have been creating a possible non-existent demand, pushing initially the land prices up and then the property market.
- The problem is that when the prices do not represent the real market values, then the possibility of a market downturn is very strong. Depending on the market dynamics, that could be translated to a price collapse. On the other hand, the mortgage market in Kenya is extremely small. Basically, banks tried to stay out of the property market as much as possible. A little over 20,000 are the total active mortgages countrywide. Read more
House developers get reprieve in new tax proposal
01/09/2016 : The standard, Pg 33
- Large house developers have received a major tax incentive after Parliament reduced the number of units that qualify for lower taxes from 1000 to 400. Through an amendment to the Finance Bill, home developers will now pay 15 per cent in income taxes further down from 20 per cent proposed by Treasury Cabinet Secretary
- Henry Rotich. “The Bill be amended by deleting… and substituting the following new paragraph… in the case of a company that constructed at least four hundred residential units annually, fifteen per cent for that year of income subject to approval by the Cabinet Secretary responsible for housing,” the amendment tabled in Parliament on Tuesday reads in part.
- This is good news to players in the sector who had argued that the 1,000 units as set previously was too high, a threshold that locked out majority of the developers in the sector. By reducing the taxes and the number of units, Parliament has given more players in the sector a chance to enjoy the benefits. Read more
Mortgage borrowers opt for fixed interest rates in harsh economic times
02/09/2016 : The Business Daily, Pg. 11
- Last year was hostile for home buyers in Kenya. Many were forced to adjust terms of paying for their dream homes as interest rates rose sharply, ballooning their mortgage payments.
- Recent data from the Central Bank of Kenya (CBK) suggests that home buyers had to renegotiate terms, including extending maturity periods and opting for fixed rates as the high rates pushed outstanding mortgages in the country up by Sh39.3 billion.
- CBK data shows that while only 2,445 new mortgages were issued by 34 banks in 2015, outstanding mortgage went up from Sh164 billion to Sh203.3 billion which means the balance after a whole year of servicing went up instead of down, pointing towards renegotiation.
- This partly explains why in the difficult period, where average mortgage rates rose from 15.8 per cent in 2014 to 17.1 per cent in 2015, only one extra loan account defaulted.
- Non-performing loans (NPLs) went from 1,474 to 1,475.
- CBK noted that home owners had adapted and were moving to hedge their bets on a fixed rate rather than get exposed to interest rate fluctuations. Read more
Fusion eyes private sources in funding Sh2bn Meru mall
31/08/2016 : The Business Daily,Pg. 19
- Fusion Capital will fund the Sh2.3 billion mixed-use development in Meru County from privately raised cash and only use debt as a last resort, its chief executive Luke Kinoti has said.
- This comes after the company achieved only 38 per cent success rate in a bid to raise the cash through a development real estate investment trust (D-Reit). The loose target was to reach 50 per cent of the overall amount.
- The firm raised Sh873.9 million, leaving a gap of Sh1.426 billion. The money came mainly from three insiders (or existing shareholders) as only one outsider subscribed, making a total of four.
- The D-Reit will not be listed on the Nairobi Securities Exchange (NSE) since it did not reach the threshold of seven subscribers as prescribed in the Capital Markets Regulations for Reits.
- “We will use the money raised even though the D-Reit will not be listed. The company will seek more cash privately. Debt will be a last resort,” said Mr Kinoti on the phone.
- The company though said it would also engage the bourse and the Capital Markets Authority for possible raising of money in the future. Read more
Dangote shakes Kenya’s cement market with Ethiopia imports
30/08/2016 : The Business Daily, Pg. 1
- Nigeria’s Dangote Cement has started its shake-up of the Kenyan market with importation of the commodity from its plant in neighbouring Ethiopia as it prepares to establish a local manufacturing plant.
- Dangote’s targeting of the Kenyan consumer with low-cost cement from Ethiopia is expected to further drive retail prices downward in a market where they have remained static for nearly 10 years.
- Importing cement into Kenya is seen as Dangote’s short-term market entry plan as it prepares to establish a local plant in 2019.
- “In addition, we have begun exporting cement to neighbouring Kenya,” the company, which is owned by Africa’s richest man, Aliko Dangote, said in its latest trading update.
- Dangote said the cement exported to Kenya is priced at about $74 (Sh7,400) per tonne, making it up to 40 per cent cheaper than locally manufactured brands.
- The price is expected to incorporate the cost of transporting the cement to Kenya as well as taxes where applicable, while still leaving the company with a profit.Read more
Real estate one of the key drivers of growth in the economy.
04/09/2016 : Cytonn Monthly – August 2016
- Real estate continues to be one of the key drivers of growth in the economy. Despite the sector being lucrative, capital raising in the sector has remained a challenge and that is why we have seen many developers seek alternative sources of capital. In the month of August, we saw two firms seek to fund raise from the capital market markets through the issuance of REITs and Equity listings prospects.
- Superior Homes announced plans to list on the Growth Enterprise Market Segment (GEMS) of the NSE, subject to regulatory approval. If the bid succeeds, the developer behind the Green Park Estate in Athi River Machakos County will be the 2nd real estate company to list on the bourse after Home Afrika, which listed in 2013. Superior Homes has a good track record in real estate development and we think the company might be able to list if they are to get the timing right.
- Fusion Capital failed to list its REIT in the market as it did not meet the threshold for listing of a minimum of 7 investors and 50% subscription rate. The REIT recorded a 37.9% subscription rate raising Kshs 873.8 mn out of the targeted Kshs 2.3 bn from only 4 investors. Fusion Capital will, therefore, have to raise additional capital through private placement and only use debt as a last resort to fund a mixed-use development in Meru. In Real Estate Listings in Kenya, the successful fundraising from the market shall be supported by:-
- Institutional support before launching,
- Increase product-knowledge to the wider market,
- Improve corporate governance around issuances,
- Provision of a minimum return guarantee to the buyers and clarity regarding exit strategies to build investor confidence
Cytonn Introduces Taraji heights
- Cytonn Real Estate would like to introduce Taraji Heights, an integrated lifestyle development located approximately 2 km from Ruaka town center on a 2.8-acre site touching Limuru road. This is one of our investment ready products offering between 25% – 30% return to buyers.
- The project, whose estimated value is Kshs 2.5 bn, will comprise of
- Residential apartments with 2 and 3 bedroom options
- A retail component
- A borehole and sewer treatment facility.
- Taraji heights is currently at the design stage and are targeting to break ground in Q1’2017. Our clients are our number one agenda and as such we are extending a special offer open only to them.
- This will be for a limited number of units at 15% discount from the introductory price.
- Early stage investors in our other Ruaka Development, The Alma, have recorded capital gains as high as 55%, annualized, since purchasing their units less than one year ago.Read more
2 comments on “MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.54”
Can you build individual houses.I m interested in building four bedroom panel house in Kiambu
Wish to build a four bedroom house from eps panels in Kiambu. What would be the cost