MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.58
University of Nairobi plans hostel for 4,000 in deal with investors
PERIOD: September 26 to October 2, 2016
26/09/2016 : Business Daily, Pg.6
- The University of Nairobi is set to construct a multi-billion shilling hostel complex to accommodate 4,000 students on its main campus amid rising student population.
- The complex will sit on a 3.7-acre piece of land along Harry Thuku road between Norfolk Towers and Hotel Boulevard and is set to ease pressure on the existing facilities that have not kept pace with student numbers.
- Construction will be through a public-private partnership (PPP) in which private investors will finance construction, operate for some time to recoup their investments and profit before transferring ownership to the university, according to Treasury’s PPP unit.
- Official data shows that the university’s student population has nearly doubled in the past three years to 98,713 last year from 69, 946 in 2014 and 50,895 in 2012.
- This has piled pressure on the facilities with some government-sponsored students missing accommodation.
- The proposed hostel will also have facilities to accommodate 50 visiting foreign scholars at any given time.
- The University of Nairobi has recently been keen to expand its infrastructure after years of lull even as other public institutions like Kenyatta University have been on an expansion spree, setting up hostels and modern libraries. Read more
Nairobi Sh14bn light rails project set to finally start.
27/09/2016 :Business Daily, Pg.5
27/09/2016 : The Daily Nation pg.26
- The construction of light commuter rails to link Nairobi estates with the city centre is set to start after viability studies of the Sh14 billion project meant to ease congestion on roads.
- The project, which has been on the cards for the past five years, will involve construction of nine railway transport corridors whose trains will pick commuters from several estates and drop them at the Nairobi Railway Station in the Central Business District (CBD).
- The nine commuter corridors include Ruiru-Thika, Juja Road-Kangundo, Jomo Kenyatta International Airport-Athi River, Lang’ata Road-Karen and Upper Hill-Ngong.
- Others are Kabete-Kikuyu, Gigiri-Limuru and Outer Ring Road in the city’s Eastlands area.
- “Feasibility study has been completed and the preparation of terms of reference for detailed designs is ongoing,” reads a government note prepared by the Planning ministry.
- The government seeks to ride on deep-pocketed private investors to offer Sh14 billion ($138 million) and expertise for the construction of the city railroads under a public-private partnership (PPP).
- In the deal, private firms will invest in the project, operate it for an agreed period to recoup their expenses and profit before handing it over to the State. Read more
Sh167m classrooms project raises eyebrows
28/09/2016 :The Standard, Pg.19
- Siaya Governor Cornel Rasanga has been put to task over the implementation of a Sh167 million Early Childhood Development (ECD) classrooms project.
- The governor was yesterday hard pressed to explain to the Senate Public Accounts and Investments Committee why procurement rules were flouted during the implementation of the project.
- Auditor General Edward Ouko in his 2013/2014 report questioned why the county government did not put out a tender advertisement for the project.
- The Senate watchdog also questioned why the administration did not constitute a technical and financial evaluation committee and an inspection and acceptance committee.
- The Auditor General had further established that a contractor, who landed a Sh2.959 million tender to construct an ECD block at Nguya Primary School, did not appear as a bidder in the tender opening minutes.
- Other two contractors who clinched tenders to construct classrooms for ECD learners at Awelo and Sihayi Primary Schools, the Auditor General noted, were paid a sum of Sh2.9 million in advance.
More Chinese firms get mega construction deals
28/09/2016 : Business Daily, Pg.7
- Chinese contractors have firmed up their control of mega construction tenders even as local contractors decry lack of support from the national government.
- The China Railway 21st Bureau Group will build a 20-kilometre dual carriageway between Athi River and the Machakos turnoff at a cost of Sh5.3 billion while Jiangxi Zhongmei Engineering Construction has clinched a tender to rehabilitate the Kakamega-Webuye section of the Kisumu-Kitale road.
- The dual carriage way project is meant to ease traffic congestion and speed up transportation of goods and people between Nairobi and Machakos.
- “The project is financed by the government and the World Bank Group under the ‘Kenya Transport Sector Support Project’, and will take a period of 18 months to complete,” said the Kenya National Highways Authority (KeNHA) director- general, Peter Mundinia.
- The tender award comes after the government said Tuesday that it is ready to pay Sh17 billion owed to road contractors this week, a move expected to boost confidence in the public private partnership initiatives.
- According to the project design, traffic flow will be eased in-bound from Machakos turnoff and out from Athi River and the Northern Corridor from Mombasa to Nairobi.
- The project will cut the travel time between the capital and Machakos.
Homes Expo event reflects the current needs in real estate
29/09/2016 : The Daily Nation pg.35
- The 24th edition of East and Central Africa’s biggest home show will be held at the Kenyatta International Convention Centre from October 27-30.
- The expo, known as the Blue Triangle Kenya Homes Expo, will provide a platform mainly for middle-income earners to look at the different options of owning a home.
- It will feature a number of innovative products.
- The expo comes at a time when many Kenyans want to own homes in urban areas but cannot afford it.
- Mr Daniel Ojijo, the organiser, says the theme for this year’s event, “Homes for All”, is intended to reflect the needs in the real estate market in the country today.
- “The need for an affordable home is key in this expo and is the main highlight of the four-day event,” Mr Ojijo said.
- He noted that in the past, the expo had focused on high-end properties in areas like Lavington, Runda, Karen and Westlands which, unfortunately, had led to saturation in the market.
- However, with an increased activities on the outskirts of Nairobi in places like Athi River, Kitengela, Ngong and Ruiru the organisers have been forced to change tack.
- “The market trend has changed dramatically and the demand, unlike in the past, is from middle-income earners whose population is increasing by the day,” says Mr Ojijo.
- As a result, the expo is targeting middle-income earners between the ages of 27 and 40, who are either at the beginning, or at the peak, of their careers and want to own a home. Read more
HF in Ksh 5 Billion housing project on Thika Road.
29/09/2016 : The daily Nation, DN2 PG 2.
- The HF group has embarked on a sh 5 billion project to build 1520 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, which 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.
- The firm says the two bedroom units will be priced from Ksh 6.5 million while the three bedroom units will start from 7.5 million phase one is expected to be complete by the end of 2019, adding to the growing variety of apartments around Nairobi.
- The houses along the busy Thika Superhighway target the middle class market and other investors who might want to let out the units.
China fund and government in deal to build 20,000 houses
29/09/2016 : The daily Nation, DN2 PG 2.
- China Africa Development Fund (CAD Fund), a private equity firm, has signed a deal with the government and two construction firms to build 20,000 houses.
- Cad fund’s deal with Suraya Property Group and China civil Engineering Construction Company (CECC) to build the houses will unlock a project that has dragged on 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 project targets the police, civil servants, soldiers, parastatals officials and county government workers.
- The move by the Chinese firm comes after local investors shunned the government fronted project to build 10,000 units in Nairobi’s Shauri Moyo Estate, Starehe and Park Road.
- The proposed project had entitled civil servants to homes costing between Sh 4 Million and Ksh 25 Million to be paid for over a period of 20 years at an annual interest rate of five per cent.
Cytonn Launches the Ksh 6 billion mixed development Ridge
29/09/2016 : The daily Nation, DN2 PG 3
- Cytonn Real estate registered more than 20 per cent off plan sales of phase one units during the Launch of the ridge, a sh Billion mixed use development located in Ridgeways.
- The Ridge sits on 10 acres of land near the Windsor Golf club and the upcoming Two Rivers Mall.
- The development, which will be done in two phases consists of one to four bedroom apartments, with the option of three bedrooms with a domestic servant’s quarter ans penthouses.
- The development will also have over 20000 square meters of retail space consisting of a mini – mart, convenience storres a salon and a laundry among others
Rent-to-own homes for middle class on the way
29/09/2016 : The daily Nation, DN2 PG 4
- Due to the high cost of land, owning property remains largely a dream to many people. Housing reports indicate that most low- and middle-income housing estates around Nairobi’s central business district are characterised by low-rise, old, dilapidated buildings, overstretched infrastructural services and illegal extensions that have resulted in urban decay.
- With developers having concentrated mainly on the high-end market, many middle- and low-income homes had lost hope of ever owning a house.
- Urithi Cooperative Society launched an ambitious programme to enable low-income earners and investors own houses across the country. on a rent-to-own basis in Joska
- The society’s Chief Executive Officer, Mr Kelvin Majau, said: “We have started an affordable housing scheme with 12 units that will see Kenyans own their own houses without straining.” The project, known as Osten Terrace Gardens, will be launched in December in Joska on a rent-to-own basis. It will comprise a modern estate with two bedrooms per unit on a three-storey building. Each apartment will be sold for Sh1.6 million.
- “We realised that most Kenyans dream of owning a home and that is why we came up with an affordable scheme. With a minimum deposit of Sh200,000 and the monthly payments of the balance for four years, this dream will come true,” he said.
- Those who have the means can pay up to a Sh1 million deposit. The monthly instalments range between Sh16,000 and Sh94,000 per month, depending on the repayment period.
- Those who have not cleared their balance but were vetted and had shown the interest, will still be allowed to move in as long as they meet the threshold. Read more
Kapiti the new investment frontier
29/09/2016 : The daily Nation, DN2 PG 5
- For a long time the Kapiti Plains in Kajiado County were dotted with acacia trees and served mainly as pasture for the pastoralist Maasai.
- Property investors had shunned the area due to its inaccessibility because of lack of infrastructure.
- However, this is gradually changing, with key players in the real estate sector and other investment companies making it the their new destination.
- The ongoing construction of the standard gauge railway (SGR), the planned Konza- Isinya/Kitengela Bypass, and the rapidly shrinking land near the city whose price has become prohibitive are luring investors to the area.
- Since the launch of the SGR, land buying companies, cooperative societies, self-help groups, corporations, learning institutions and individuals have been scrambling for land in the area with a view to building or settling there, or for speculation.
- Real estate company Eden Park Country Gardens, KCA University and Stima Sacco are among those who have acquired land in the Kapiti Plains, which border the fast-growing Kitengela to the east. Read more
Tough market: Malls getting creative to attract, keep tenants
29/09/2016 : The standard, Home and Away Pg 2
- The competition for tenants in malls is pushing mall owners and managers to get creative to attract and retain clients. Some have come up with trainings and workshops to train their clients on customer care among other disciplines.
- First, it was Thika Superhighway’s Garden City which rolled out a programme to train tenants on best business practices that would enable them to attract more customers and increase sales
- The mall’s marketing manager Ruth Wako said the move is aimed at helping the traders maximise sales.
- “We have organised to have a retail specialist train our tenants on best practice in regards to retailing. This includes training them on customer service, window display, social media and so on,” Wako by a local daily as saying.
- She disclosed that they had continued to attract a good number of clients and shoppers, which had caused their occupancy rate maintained at 98 per cent.
- Following Garden City closely is The Hub Karen Mall. Just like Garden City, the mall is now hosting workshops and seminars for its tenants to help them improve retail experience for their clients.
- “We want to encourage the retailers in The Hub to see customers with new zeal and enthusiasm. Customers are inundated with choices; they need to make decisions about what to do, where to eat and what to buy all the time. Customers expect good service and have high expectations about how services and things are sold to them,” Said Jonathan Yach the Hub manager
- He added: “In seeing customers in this different light, The Hub asks its retailers to encourage their shop sales staff to enjoy the skills enhancement training sessions in visual merchandising, appreciation of research, how to best use social media and the basics of customer service.
- Yach said this may not be so much a new trend in Kenya but is certainly a necessary one, one that is accepted by its retailers.
- The management said their aim is to ensure tenants to build a world-class retail landscape locally.
- “The key to good customer service is equipping tenants with the necessary skills for them to deliver an exceptional shopping and lifestyle experience to their customers,” The Hub Karen management said in a statement.Read more
Unlocking the housing shortage
29/09/2016 : The standard, Home and Away Pg 5
- The Kenyan housing industry faces an annual shortfall of more than 200,000 units.
- Experts believe this shortage is likely to dog the real estate market for the foreseeable future due to a number of reasons, key among them being the high cost of building.
- But one innovator has seen opportunity amidst this deficit and come up with a machine that makes interlocking blocks from concrete.
- He says this can reduce the costs of putting up a house by almost half. “We are innovating new building technologies for mass production of housing units which significantly reduce the cost of construction,” Charles Muriithi, the managing director of Homgenius Limited, told Home & Away.
- Homgenius Ltd is a Kenyan company that has developed a machine with the capacity of producing more than 2,000 interlocking building blocks per day.
- The machine, christened HGM, short-form of Homgenius by Muriithi, its innovator, is automated, meaning that a home builder can get his interlocking blocks much faster.
- Muriithi says the journey to the machine has been a labour of love. A labour that saw him quit his job at a local bank in pursuit of his dreams almost 10 years ago. “People at some point thought I was mad. But now they see that it was not in vain,” he said. Read more
The real estate sector experienced various efforts to reduce development costs among them tax incentives for low-cost housing developers and caps on environmental fees. There were some fund-raising efforts through the capital markets through DREiT. Developers are increasingly exploring innovative purchase options for the end-user to increase uptake for housing units.
02/10/2016 : Cytonn Quarter 3 report 2016
During Q3’2016, there were a couple of activities that happened in the real estate sector.
- Fund-raising activities
- There is continued interest by real estate firms to access capital through the capital markets and in Q3’2016 we saw;
- Fusion Capital sought to list a DREIT. However, the firm failed to list the DREIT in the market as it recorded a 37.9% subscription rate raising Kshs 873.8 mn out of the targeted Kshs 2.3 bn from only 4 investors, thus did not meet the set threshold. Fusion Capital will, therefore, have to raise additional capital through a private placement to fund a mixed-use development in Meru,
- Green Park Estate Developer, Superior Homes announced plans to list in the Growth Enterprise Market Segment (GEMS) of the NSE,
- Stima Sacco announced plans to issue a corporate bond aiming to raise Kshs 5.0 bn to diversify into the mortgage business for periods of 10-15 years at a fixed rate and on a reducing balance.
- The track-record for real estate issuances has not been good this far due to unfavourable market sentiments, lack of sufficient product knowledge and clarity on exit strategies and returns.Developers will need to address these issues for successful offerings.
- Development Incentives
- The Finance Bill 2016 proposal tabled in Parliament was in September signed into law. Effective 1 Jan 2017, developers will pay 15.0% in income taxes for constructing at least 400 low-cost residential units annually. While this will help curb the current high housing deficit especially in the low-income segment, there’s need for clarity regarding the value or definition of a ‘low cost’ house and in which year of income the 15% tax becomes applicable considering that the life cycle of selling residential units would be spread over a number of years.
- Innovative end user Financing
- In a bid to increase uptake of property, developers have increased focus on financing options available for the end-buyers of property.
- For Stima Sacco, should the bond be successful, it shall be used to give borrowers (who have to be members of the Sacco) funding to buy houses and repay over 10-15 years. The borrowers shall 20% deposit, with the Sacco financing the rest of their mortgage costs based on their contribution to the Sacco,
- Commercial Bank of Africa (CBA) also announced a partnership with Bamburi Cement to finance mortgage borrowers in the lower middle-income class for houses whose prices range between Kshs 0.5 mn to Kshs 4.5 mn,
- On the same note mortgage holders are set for a Kshs 3,750 additional relief on their monthly earnings. The amended Finance Act 2016 provides for tax exclusion on the interest portion of mortgage repayments up to Kshs 25,000 up from the previous Kshs 12,500. The relief applies to all loans taken to buy or refurbish properties from banks, Saccos and insurance companies. This relief is however only applicable for single residential dwellings where the owner lives.
- These initiatives by real estate stakeholders are likely to increase the mortgage uptake and provide ease of exit to developers as well as increase home ownership in Kenya. The recent capping of interest rates can only increase the chances of success for this initiative but it is good to note that most people still cannot afford to service a mortgage even at this levels since most of the prices of the houses are well above their reach.
- The real estate sector remains resilient in terms of growth recording an 8.7% growth in Q2’2016 compared to 6.7% in Q1’2016, according to recently released data by the KNBS. The outlook for the real estate sector remains positive driven by
(i) incentives for mass development.
(ii) the rising middle class with higher disposable incomes and propensity to spend.
(iii) increased investment in infrastructure.
(iv) use of alternative building technology to lower costs.
v) innovative end-user financing.Read more