MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.57
Chinese fund enters pact to build 20,000 houses for civil servants
PERIOD : 19 to 25 September,2016
23/09/2016 : Business Daily, pg 6
- Kenya’s long-held ambition of housing civil servants has got a major boost with the entry of a Chinese equity fund in a public-private partnership deal.
- China-Africa Development Fund (CAD-Fund), a private equity firm, Thursday signed a deal with the government and two construction firms; Kenya’s Suraya Property Group and China Civil Engineering Construction Company (CECC) to build 20,000 houses.
- The deal will set in motion a project which has dragged for three years. Under the agreement, the government will provide land on which CECC will build the units while CAD-Fund will finance the project under the technical advice of Suraya.
- “The partnership is such that the government also manages the end products,” said Suraya Group CEO Pete Muraya after the signing ceremony in Nairobi.
- “We are also addressing all types of housing, where we are targeting maybe a million shillings or less and we are going up to the senior civil servants who may want, maybe a bigger house on a quarter of an acre,” he said.
- Construction of the homes will help improve the shortage of shelter for government officials especially in Nairobi. The project targets the police, civil servants, soldiers, parastatal officials and county government workers.Read more
HF Group set to put up Sh5bn apartments on Thika highway
23/09/2016 : Business Daily, pg 19
- HF Group has embarked on a Sh5 billion project to put up 1,520 two and three-bedroom apartments along Thika Road as the mortgage company ramps up its development portfolio
- The apartments will be built in a joint venture with Clay Works Ltd that owns the land.
- The project will sit on 24.5 acres and will be in three phases. Phase one will be set on 8.6 acres, phase two on 10.5 acres and phase three on 5.4 acres.
- James Karanja, the executive director of HFDI, the property development and investment subsidiary of HF Group, said two-bedroom units will be priced from Sh6.5 million while the three bedroom units will start from Sh7.5 million.
- “The first phase will see the construction of 560 units, the second phase 480 units and the third phase 480,” Mr Karanja said.
- Phase one is expected to be complete by the end of 2019, adding to the growing variety of apartments around Nairobi. The houses on the busy Thika Superhighway target the growing middle class market and other investors who may want to let out the units.Read more
Eveready now to sell its land, not develop it
22/09/2016: The Daily Nation, DN2, Page 2
- Eveready East Africa has shelved plans to develop a prime plot in Nakuru and will now sell it instead
- The company is seeking the shareholder’s approval to sell the 18.5 acre piece of land on which its redundant battery manufacturing factory sits.
- the firm said a feasibility study had shown that it was not viable to develop a shopping mall and apartments on the land, hence the decision to sell it.
- Consequently, the company will dispose of the land to retire expensive debt, reduce the interest burden, and generate free cash flow.
- Eveready had even solicited for bids and had received offers from three institutional investors to fund the real estate project through either equity or debt,or a mix of the two.
Firm seeking shs 3 Billion compensation from interior ministry for Embakasi land
22/09/2016: The Daily Nation, DN2, Page 2
- A real estate firm wants the High court to compel the interior ministry to pay it shs 3 Billion awarded as compensation for a 90 acre piece of land acquired from it by the state to put up the Embakasi Barracks.
- Torino Enterprises says it has been demanding says it has been demanding the colossal sum from the ministry since 2011, when it was awarded, but that it is yet to receive a single cent.
- The firm says Justice Jean Gacheche awarding it Sh 1.53 Billion after finding that the Department of Defence forcibly took possession of the land in 1984.
- Torino had planned to use it for a number of real estate ventures.
- It now wants the amount awarded together with the 12% annual interest accrued since which brings the total to Shs 3 Billion.
- The interior ministry is yet to respond to Torino’s application.
Corporate tax halved for low cost housing developers
22/09/2016: The Daily Nation, DN2, Page 3
- Developers who put up at least 400 low cost residential houses will now enjoy a lower corporate tax rate of 15%, down from the normal 30% rate as the government looks to boost housing for low income earners
- President Uhuru Kenyatta last week signed into law the finance bill 2016. handling developers the terms, which are more generous than the initial offer made by Treasury secretary Henry Rotich in his June 8 budget speech, had indicated that developers who build at least 1000 units would be eligible for a tax break and would pay a 20% corporate tax.
- The new terms come as good news to developers, who had argued that the 1000 units target was too high, saying that few companies in the country had enough capital to finance such large developments.
France to sell Nairobi Embassy
22/09/2016: The Daily Nation, DN2, Page 3
- The French government has put its ambassador’s residence in Kibera Nairobi, up for sale
- The sale of the five bedroom maisonette that sits on a 4.90 acre plot on Nairobi’s Kabarnet close, off Ngong Road, is expected to raise about half a Billion shillings.
- The French embassy in Nairobi said the sale is part of a strategy to have the ambassador’s residence and embassy in one location.
- Currently, the French embassy in Nairobi is located at Barclays plaza loita street, in the city centre.
- Its relocation is expected to be complete in the half of 207. France also has a consulate in the Kenyan seaside town of Mombasa.
- In 2014 began building the new French diplomatic hub at peponi Gardens Road in Westlands.
- The new facility, known as campus Diplomatique Francais Nairobi comprises the Ambassador’s residence, the embassy, the French Guards, and staff quarters.
Kiambu investors tailor making homes for middle class
22/09/2016: The Daily Nation, DN2, Page 4
- In the past few years, the property market in Kiambu County has grown tremendously.
- However those who wanted property in the county, which is regarded as one of Nairobi’s dormitory towns, have had to pay between Ksh 25 million and Ksh 40 million or more for a unit.
- The high asking prices have put the houses effectively locked out the middle and low income earners.
- But some developers are now tailor making products for the middle class with a view to making the most of the growing population that has continued to create a huge demand for homes.
- Chrisfield Developers Ltd has put up Golf view villas, a small gated community located in the fast growing Kirigiti area on the outskirts of Kiambu town.
- The project comprises spacious four bedroom master en suite middle class units, which are going for ksh 16 million each.
- The houses are not inferior to the high end houses in terms of facilities, only that they have been tailor made to accommodate even middle-income earners who want to own decent homes in Kiambu but cannot raise the Ksh 40 million demanded by other estate developers around.” says the architect of Gold view villas
By-passes fast becoming hotspots for warehouses
22/09/2016 : The standard, Home and Away Pg.2
- The new by-passes around Nairobi have enabled a freeing up of transport routes with the intersections of these new roads have become hotspots for logistics parks such as Tilisi, Tatu Industrial and Logistics Park, Northlands Commercial Park, Infinity Industrial Park and Nairobi Gateway Logistics Park.
- This as a survey carried out by Knight Frank notes that warehousing is an emerging focus for development in Sub-Saharan Africa, as this property class is currently scarce across much of the region.
- The Knight Frank Logistics Africa 2016 report — a review of Sub-Saharan Africa’s emerging logistics property sector — has established that Nairobi lacks an adequate supply of quality logistics space, pushing some firms to invest in their own custom-built facilities.
- “Due to a lack of supply, some occupiers are forced to develop their own property and then ultimately revert to a sale-and-leaseback arrangement as it’s not their core business to own property,” said Ben Woodhams, Managing Director Knight Frank Kenya.
- Occupiers of prime warehouses demand properties built to high technical specifications that support modern retailing, distribution and manufacturing practices. However, according to the report, the existing stock is old and mainly based in Industrial Area.
- Prime logistics space in Nairobi commands a rent of $4.2 (Sh424) per square metre per month, a relatively low figure largely due to the quality of existing structures. Read more
Environmental tribunal stops second phase of SGR
22/09/2016 :The standard, Home and Away Pg.2
- A tribunal has stopped the construction of the second phase of standard Gauge Railway (SGR) a week before President Uhuru Kenyatta launches the project officially.
- It ordered the China Road and Bride Corporation to stop any activities related to the project until an appeal is heard and determined by the tribunal did this following a petition by activist Okiya Omtata and the Kenyan Coalition for wild life conservation.
- The activist and the lobby groups have accused the National Environment Management Authority for allowing the project to go on without environmental impact assessment being done.
City mall, the Hub Karen, borrows design elements from old Europe
22/09/2016 :The standard, Home and Away Pg.2
- The Hub at Karen is yet another addition to the growing list of malls within the city.
- The concrete and glass magnets are designed to draw in shoppers. But to attrcat shoppers, the new edifices must go the extra mile. The Hub at Karen is built with elements from a European style of a bygone era.
- The entire development is woven around a central Piazza akin to the city squares and colonnades that were the hallmark of ancient Europe.
- Back then, squares were common features in countries such as Italy that drew masses for various repertoire of amusement games on offer.
- The Hub has wide arches and earthen hues that give it a modern feel. The piazza at The Hub takes on a similar role. Here, you can sit down to catch some breath after an expansive shopping spree while catching up on the latest online gossip through the free Wi-Fi connection.
- The more adventurous can cruise their hover-boards and skateboards along the Piazza.
- According to the mall’s marketing manager Linda Muriithi, creating a half-acre open space was deliberate move by the developer, a move that has revolutionalised the way we look at our malls.
- The relaxing atmosphere, adds Muriithi, means that it is impossible for a visitor to walk in and out of the mall. “The piazza gives a comforting touch to the whole development.One does not feel overwhelmed by the huge development. Sit and listen to the sounds, catch the rhythm, the pulse and heart of Karen. You can relax and watch your children play about in safe surroundings. We have had people come here, say at eleven in the morning, are taken in by the nice ambience and leave way past four in the afternoon,” she says. Read more
Investors keep away from cheap housing project for civil servants
21/09/2016 : Business Daily, pg 6
- Investors have shunned a government housing project for a civil servants, dealing a blow to workers dreams of owning cheaper homes soon.
- The government had in December 2013 invited bids from private firms to build 10,000 units in Nairobi’s shauri Moyo estate (2000 houses), Starehe (6,400 units) and park Road (1,800 houses).
- Construction is however yet to start three years later with only a few firms having expressed interest in the projects while shunning Shauri Moyo, according to officials.
- The proposed project had entitled civil servants to homes of between Khs 4 million and Khs 25 million to be paid for over a period of 20 years at lower interest rates of 5% annually. Investors were to build the units under a public private partnership (PPP) in which they would finance construction , operates for some time to recoup their investments and profit before transferring ownership to the state.
Uhuru hands low-cost housing firms 15pc tax break in new law
20/09/2016 : Business Daily, pg 19
Developers who put up at least 400 low-cost residential houses will now enjoy a lower corporate tax rate of 15 per cent, down from the normal 30 per cent, as the government looks to boost housing for low-income earners.
President Uhuru Kenyatta last week signed into law the Finance Bill 2016 handing developers the terms that are more generous than the initial offer made by Treasury secretary Henry Rotich.
Mr Rotich in his June 8 Budget speech had indicated that developers who build at least 1,000 units would be eligible for a tax break and would pay corporate tax at a rate of 20 per cent.
“Key amendments in the Finance Act, 2016 are: reduction of corporate tax from 30 per cent to 15 per cent for investors who put up 400 and above residential housing units to promote housing development,” said Manoah Esipisu, State House spokesman on Sunday.
The new terms will come as good news to developers who had argued that the 1,000 units target was too high adding that few companies in Kenya had capital to finance such large developments.
Deloitte East Africa associate director Gabriel Ouko in June noted that for the tax break to be effective, the government would need to lower the number of units from 1,000 to allow for many investors to participate.
David Kanyi, chief executive at Kenya Projects, a company developing houses for as little as Sh1.5 million, had suggested that the threshold should have been set at 100 units and be scaled up annually.Read more
The Finance Bill 2016 was signed into law issuing a 15.0% corporate tax relief to low cost residential houses developers
25/09/2016 : Cytonn Weekly Report No. 38
- In an attempt to boost the supply of housing for low income earners, the President last week signed into law The Finance Bill 2016, which offers a 15% corporate tax relief to developers who put up at least 400 low-cost residential houses p.a., a reduction from the initially 1,000 suggested by the Treasury cabinet secretary in June. In our opinion we believe this will be effective and spur increase in low cost units, which is also being boosted by other factors such as:
- Tax incentives – Tax has been a big expense hence increasing on the costs incurred by the developers, which in turn discouraged developers from developing low cost housing
- Poor performance of high end market – There is a stagnation in prices of high end property due to too much supply that had hit that segment of the market. The sector has well witnessed a 0.2% decrease in prices for luxurious houses between April to June 2016
- Lower interest rates – The decreased interest rates by banks will result into reduced the cost of financing real estate developments hence leading to lower project costs, translating to relatively lower selling prices to end users
- Innovation: Creative payment schemes such as tenant purchase will make the low income segment to be an attractive investment option to clients hence increase uptake.
CAD Fund, signed a deal with the government and two construction firms to build 20,000 civil servant houses
- During the week China – Africa Development Fund (CAD Fund), a private equity firm, signed a deal with the government and two construction firms; Kenya’s Suraya Group and China Civil Engineering Construction Company (CECC) to build 20,000 civil servant houses.
- This is meant to be a public – private partnership (PPP) deal, with the following structure; the government will provide land, CECC will be the construction company, Kenya’s Suraya group will be the project management firm and CAD Fund the financiers.
- CAD-Fund, controlled by China Development Bank, also opened a representative office in Nairobi; the office will also be used as regional headquarters for Eastern Africa.
- This signed PPP comes at a time when various local PPP agreements have been deemed to fail over the past years both at the county and national levels because for a PPP to attract private capital into a project, the respective land has to be separated and moved into a special purpose development vehicle that has title to the land and there is currently no framework to enable transfer of public land into special purpose vehicles that can attract private capital and bank debt.
- However, the already signed PPP with a financier on board has a high probability of success, which will contribute into curbing the current housing deficit that is more concentrated in the low income segment. Read more