MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO. 60
Real estate firm wins Top 100 competition
PERIOD : 10 to 16 October, 2016
10/10/2016 : Daily Nation, pg 29
- Real estate firm Diamond Property Merchants has been crowned the winner of the ninth edition of the Business Daily -KPMG’s Top 100 Mid-Sized Companies’ annual survey.
- The company’s client relationship manager, Kuria Wanjau, said teamwork and aggressive marketing on various media platforms had helped the firm grow revenues as well as expand operations across the country.
- The company, which was started four years ago by Josphat Gichunge, wooed judges with its value addition component on commercial and residential land where emphasis lies on buyer security with keen attention to use of alternative technology for affordable housing solutions.
- Security services firm Izmir Enterprises and Manufacturing outfit Soloh Worldwide Inter-Enterprises Limited took the second and third positions respectively.
- Other firms that made it to the top 10 are Advanta Africa, Hipora Business Solutions, General Cargo Services, Komal Construction, Allwin Packaging International, Tangazo Letu and Northstar Cooling Systems.
Nairobi satellite towns post high prices of land
11/10/2016 : Daily Nation, pg 32
- Juja, Ruiru and Limuru have recorded the fastest growth in land prices among Nairobi satellite towns over the past one year as ongoing and proposed infrastructure developments attract land speculators and housing developers.
- The HassConsult property index for the third quarter of 2016 shows the price of an acre of land in Juja has gone up by 43.1 per cent over the past one year to Sh10 million on average, followed by Ruiru at 42.9 per cent to Sh21.3 million and Limuru at 34.9 per cent to Sh19.4 million.
- Juja and Ruiru have gained in recent years from the ease of access brought by the expansion of Thika Highway, as well as the proposed commuter rail, while Limuru land prices are being driven up by the ongoing construction of the Western Bypass.
- HassConsult reports that land prices for the satellite town of Nairobi in general have gone up at a faster pace of 21.4 per cent compared to the suburbs, where prices have grown by 5.67 per cent in the past year.
- “Property and rent prices in Nairobi suburbs are subdued. The only real and massive change is in the land prices in the satellite towns, which is the only sector of the market that is bucking the trend at the moment,” said HassConsult head of research and marketing Sakina Hassanali.
- “This is to be expected when you have the big infrastructure spend by the government in these areas. The people who are buying are land speculators and developers who want to use the new accessibility to provide property that is within reach of more people.”
- Other satellite towns that have benefited from infrastructure driven price rallies include Ruaka, which lies on the Northern Bypass, at an annual growth of 32 per cent in price to Sh74.7 million an acre, and Thika town at 25.8 per cent to Sh18.1 million shillings an acre.
- Satellite towns located along roads that are prone to congestion have recorded much slower growth in land price.
- The Hass survey shows that the price of an acre in Mlolongo has fallen by 16.5 per cent over the past year to Sh23.3 million and Athi River’s has only grown a marginal 0.3 per cent to Sh11.2 million. Both are accessible using the chaotic Mombasa Road.
- Some suburbs have, however, outperformed the sector average price growth, especially those located within reach of the Southern Bypass and Outer Ring Road, whose expansion is ongoing.
- As a result, the price of an acre in Donholm has gone up by 34 per cent in the past 12 months to Sh60.8 million and that of an acre in Lang’ata is up by 14 per cent to Sh54.8 million.
- On the rental and house sales side, the growth has been modest across all areas of the city compared to land purchase prices.
Bamburi’s Sh 900m expansion lays ground for fierce price wars
11/10/2016 : Daily Nation, pg 28
- Bamburi cement has unveiled plans to expand its Nairobi processing plant at sh902 million, raising stakes in an oversupplied industry.
- Increased capacity for the biggest cement maker could further depress prices, offering a huge reprieve to the construction sector and millions of prospective home owners.
- Details of the investment plan indicate that the capacity of the Athi River based factory will rise by half to 2.3 million metric tonnes a year.
- The firm is already the biggest cement producer even though new entrants have eaten into its market share through a fierce pricing war. The planned capacity expansion points to an even bigger battle.
- The conceived project is designed to satisfy the current and future development demands of cement in the country.
Larger property developers set for bank credit boost
11/10/2016 : Daily Nation, pg 28
- Larger property developers are set for a credit boost as banks shun loaning smaller competition deemed riskier following new interest rate caps.
- Sakina Hassnali, the head of research and marketing at property developers Hass consult says the larger, more established developers are seeing more credit lines open up than was previously the case increasing the capital available for new projects.
- Ms Hssanali said tougher credit conditions or the sector will streamline the market, which has largely operated without much regulation.”getting credit is more stringet, so what you have is that the very established developers are getting access to credit line. In a way this is not bad because it promotes a more formal developer market and less risk to the end buyer.
- The more robust property markets around the world had some streamlining when they started to grow, resulting in fewer small developers. That way the customer is more assured of what they are getting.Read more
Radisson Blu to open its second Nairobi hotel in February
12/10/2016 : Business Daily, pg 9
- The Carlson Rezidor Hotel Group has set February 2017 as the opening date for its second outlet in Nairobi which has suffered multiple false starts blamed on buildings delays.
- Park Inn by Radisson Nairobi was initially planned to welcome its first guests in the fourth quater of 2013, but the date has been postponed several times.
- The Minneapolis based stockholm stock exchange listed hotel chain blaimed the setback on “finishing of construction” without offering further details.
- Brothers Ronal asnd Rupen Samani through their firm AMS Properties Ltd are the owners of the upcoming 140 key Park inn Nairobi located along Woodale Grove in Westlands
- Carlson Rezidor will operate the facility under a contract management.
- The hotel seeks to tap mid market business travellers and corporate events in Nairobi, East Africa’s commercial hub.
Larger Property developers set for bank credit boost
12/10/2016 : Business Daily, pg 9
- Larger property developers are set for a credit boost as banks shun loaning smaller competition deemed riskier following new interest cap rates.
- Sakina Hassanali, the head of research and marketing property developers Hass consult says the larger, more established developers are seeing more credit lines open up than was previously the case, increasing the capital available for new projects.
- Ms. Hassanali said tougher credit conditions for the sector will streamline the market, which has largely operated without much regulation.
- Getting credit is more stringet, so what you have is that only the very established developers are getting access to credit lines. In a way this is not bad because it promotes a more formal developer market and less risk to the end buyer.
- The more robust property markets around the world has some streamlined when they started to grow, resulting in fewer developers.That way, the customer is more assured of what they are getting.
- On the other hand she added , credit will become more affordable for home buyers, thus providing some much needed liquidity in the housing market.
- The property sector has attracted a lot of interest from developers in recent years, pulled in by the high returns on offer as both land and house prices skyrocketed.
PS calls for practical land courses in colleges
13/10/2016 : The standard, Home and away, Pg 2
- Land PS Mariamu el Maawy has asked institutions of higher learning to develop “practical ” courses to adequately address land governance issues.
- Speaking when she opened a workshop on the guidelines for curriculum development in Land governance in Machakos, el Maawy asked the private sector to collaborate with the government and other stakeholders in formulating guidelines for curriculum development in Land governance.
- “Land governance education needs to be predictable and accountable,” she said Agnes Masumbi, a lecturer at Ardhi University in Tanzania said proper land governance is crucial for Africa as Agriculture is the backbone of most African economies.
Shs 12.5b Industrial park breaks ground tomorrow
13/10/2016 : The standard, Home and away, Pg 2
- President Uhuru Kenyatta will tomorrow preside over the of infinity industrial park.
- Touted as one of the largest industrial parks in east and Central Africa, Shs 12.5 Billion Infinity is being developed on 200 acres near the junction of Kagundo Road on the Eastern bypass in Nairobi. It will feature modern amenities and facilities such as power substation, industrial sheds for SMEs, private security patrols, fire station, hospital, police station and waste management system, thus decongesting the city.
- It will be the biggest project by Real estate investor Ashok Rupshi Shah.
- The park is expected to be fully functional by July 2018.
Best Western builds new hotel in Nairobi.
13/10/2016 : The standard, Home and away, Pg 2
- Best Western builds Hotels and Resorts is opening a new hotel in Nairobi dubbed Premier collection the Alba. Construction is set to start soon and the hotel is expected to open in the third quater of 2017. It will comprise 83 rooms with modern facilities like flat screen Tvs, Wi-Fi, secure underground parking and conference facilities for up to 100 people.
- The Urban Grillroom will provide an iconic restaurant with East African taste. The lobby bar and lounge will offer a perfect setting to enjoy coffee while overlooking the hotel’s garden.
- It will also have Sky bar Latino, a vibrant roof rtop bar offering cocktails.
‘Fundis’ shortage spoils party for construction sector
13/10/2016 : The standard, Home and away, Pg 6 & 7
- According to the Kenya National Bureau of Statistics Economic Survey 2016, the building and construction industry in Kenya has witnessed rapid growth, registering a 13.6 per cent demand of a skilled labour force.
- The report said that formal employment demand in the building and construction sector grew by 11.4 per cent to stand at 148,000 up from 132,900. But shortage of skilled labour is already worrying industry players.
- According to the National Construction Authority’s Construction Industry Status Survey, only 30.3 per cent of construction workers in Kenya are skilled whereas 67.6 are semi-skilled.
- The survey says that only 2.1 per cent of the labour force in the construction sector are competent, having acquired technical training as construction site supervisors in recent years.
- The report further indicates that out of the 30.3 per cent skilled construction workers, 81.3 per cent earned competencies on the job, with only 18.7 per cent having acquired skills through formal technical training. “Not many have the experience we have in exterior and interior design in special colour paints.
- There are very few skilled painters in the industry and the few of us who have had training are now forced to move from one town to another,” said Mathenge, noting that their wages have also increased.
- The boom in the building and construction industry has led to increased demand for skilled labour, but the supply for such labour is still very low. “There is a mismatch between the demand for skilled labour and the supply in almost all segments of the construction industry,” said Argwings Opanga who has worked as a human resource manager in the construction industry for the last seven years.
- He said demand for professionals in the industry some eight years ago was manageable since supply surpassed demand. “Plumbers, electricians and other professionals were everywhere and could be cheaply hired in around 2008. Some of these technicians normally went jobless in some instances since the sector was over-supplied by a big margin,” he said.
- He said that Kenya, having joined the league of middle-income economies are rebasing in 2014, did not anticipate this problem. “Kenya’s entry into the middle-income economies status has brought with it unexpected need for more skilled labour which is the key driver to an economic growth,” said Opanga.
- “In this critical phase of the economy, not only does the construction sector require labour, but professionals who are skilled and competent to handle the changing tides.”
- Major infrastructural upgrades and mega real estate projects driven by the country’s Vision 2030 have seen in Nairobi and other major towns have increased the demand for skilled labour force.
- During the construction of the Garden City Mall on Nairobi’s Thika Superhighway, phase one of the project created over 1,800 jobs.
- Many other major projects have since been launched in the last five years.
Cement firm to deliver premix concrete to construction sites
13/10/2016 : The standard, Home and away, Pg 9
- Local cement manufacturers have begun exploring alternative market opportunities to guarantee their survival in an increasingly competitive market.
- According to Savannah Cement managing director Ronald Ndegwa, local cement manufacturers will need to up their game by providing a diversified range of value added products. Such diversification will include raising the volume of ready mix concrete deliveries for small to large construction projects to complement the existing bagged cement sales.
- Speaking at the ongoing Totally Concrete East Africa Conference and Expo in Nairobi, Ndegwa said cement manufacturers are evaluating various market possibilities in the face of increased local an international competition. At Savannah Cement, he said, plans are already underway to encourage a consumer shift to bulk cement deliveries and adoption of premix concrete supplied onsite beyond the current 50kg cement bag purchases.
- “We are alive to the market dynamics and I can assure you that at Savannah Cement, we are not resting on our laurels as we continue to explore the possibility of diversifying our product range,” Ndegwa said. Savannah Cement, he said, has already moved to formulate a Hydraulic Road Bidder (HRB) product, which is a specialist cement type, used in road construction and related works.
- He said the firm would also explore the possibility of setting up a value added products factory for precast cement products, including building slabs, concrete bridges, wall panels and related structures.
- “We can’t ignore the numerous market threats and advances, neither can we afford to cry foul. We all need to play our part by beefing up customer experience standards, embracing market innovations and seeking to diversify our product range beyond the ordinary Portland cement (OPC) staple,” Ndegwa said.
- According to the Kenya National Bureau of Statistics (KNBS) Leading Economic Indicators Report for the month of July 2016, the quantity of cement produced decreased from 546,899 tonnes in May 2016 to 536,471 tonnes in June 2016. Consumption of cement dropped from 512,471 tonnes in May 2016 to 494,300 tonnes in June 2016.
- The decline has been attributed to a slower uptake by real estate developers who rely on bank finance for their projects. “At Savannah Cement, we have noted a growth in the domestic segment that caters for individual home builders. The slowdown by real estate developers, we understand, is due to ongoing facility re-negotiations arising from the recent interest rate
The factors that can derail your venture in real estate
13/10/2016 : The Daily Nation,DN2 Pg 2
- Investing in real estate is considered a good investment by individuals and firms looking for stable, long-term returns.
- “The high rate of urbanisation, coupled with the ever-ballooning middle-class, has ensured that the real estate sector continues to make a significant contribution to the country’s GDP,” says Mr Mucai Kunyiha, the chairperson of the Kenya Property Developers Association (KPDA).
- However, it is not all rosy for property developers. Mr Daniel Ojijo, the Managing Director of Villa Care Kenya and a big player in real estate, says developers have to deal with a host of challenges, ranging from corruption at inefficient government offices to poor infrastructure such as roads.
- Below are some of the hurdles one can expect to encounter in the sector:
1. Runaway land prices
In most circumstances, for a developer to make profit, they have to ensure that the cost of land accounts for 15-20 per cent of the total construction cost. For example, if a developer buys a piece of land at Sh50 million, they have to ensure that they put up a development whose value is above Sh300 million. This forces developers to put up high-rise buildings even in locations previously designated low-density residential areas,” Mr Kunyiha says.
Even then, it takes many years for proprietors to recoup their investments.
“The government should come up with measures to control land prices in urban areas to ease the pressure on property developers,” suggests Mr Ojijo. He further proposes that county governments consider giving land either for free or at subsidised rates to developers to stimulate development .
Infrastructure such as access roads, electricity, as well as the availability of water, do a lot to help bring down construction costs, says Mr Ojijo.
However, Mr Gikonyo Gitonga, a director at KPDA, observes that there’s a shortage of properly serviced land in the country, especially in the counties.
“Developers usually end up installing such services themselves. If one factors in the money used to build an access road to the final cost of building an apartment, the consumers will ultimately pay for the building through the nose,” Mr Gitonga offers.
3. Unethical practices
The term “private developer” tends to evoke rather negative feelings among the public. This is because in many cases, private developers have been associated with unethical practices such as land-grabbing, building on riparian land and cutting costs at the expense of quality during construction.
The situation is exacerbated by the occasional collapse of high-rise buildings around the country, which often lead to multiple deaths.
4.Inefficient land governing bodies
Land administration in Kenya has always been chaotic, Mr Gitonga laments. “For close to two decades, we did not enact any significant land laws and this led to the chaos that is still plaguing the sector. The passing of the new Land Act in 2012 brought a semblance of sanity to the industry, but the way many systems run is still archaic and deplorable,” says the KPDA director.
Mr Gitonga lauds the move by Land Cabinet Secretary Jacob Kaimenyi that saw him disband and then re-appoint all land control boards representing 57 registries. “The former land control boards were a monument to laxity and high levels of corruption; it was clearly time for reforms,” he says.
But KPDA regrets that even now, the inefficiencies that have plagued the Ministry of Land, the National Land Commission and the land control boards continue to haunt developers. Unscrupulous Kenyans have taken advantage of the inefficiencies of our systems to sell land with dubious title deeds, often in collusion with officials from the land ministry
Selling land in Kenya, Mr Ojijo complains, can take up to six months or even longer. He attributes this to the complicated legal requirements that make transactions drag on needlessly. He says ideally, a simple land transaction should take between 14 to 30 days.
County governments do not help matters when it comes to fast-tracking land processes, with a simple matter like obtaining a land-rate clearance certificate taking up to two months.
When it comes to construction , Mr Ojijo says, sometimes builders have to seek similar permits from their county authorities and national bodies such as the National Environment Management Authority (NEMA) and the National Construction Authority (NCA).
Some approvals can take up to two years, and both the country and developers lose money during this period, when no meaningful development is taking place.
The other side of the bureaucracy coin is corruption, which is pervasive in every sector of the property industry, according to Mr Kunyiha. “Officials of several government bodies usually entice developers to pay bribes with promises to help them cut corners and save time,” he says.
7.Unclear zoning regulations
Developers are increasingly being accused of flouting zoning regulations, especially those who set up high-density commercial establishments in areas designated low-density residential areas. Mr Gitonga blames the situation on weak zoning regulations.
“In many areas, the zoning rules allow different interpretations, and this makes them open to abuse. As such, developers often find themselves in court seeking a magistrate’s opinion on the rules. As KPDA, we are constantly vouching for transparent, open and predictable rules,” Mr Gitonga says. He also blames corruption at the approvals’ office for the propagation of this vice.
8.Insufficient government incentives
The country’s housing requirement is estimated at 200,000 units a year, with an annual deficit of 150,000 units.
While delivering the Budget in June this year, Treasury Cabinet Secretary Henry Rotich proposed tax concessions for property developers who build more than 1,000 houses a year, reducing their corporate tax from 30 to 20 per cent. This was later reduced to 400 units in the final financial Act.
This measure is aimed at encouraging developers to build more houses in order to reduce the deficit.
9. Obstacles to catering for low-income groups
“The government should declare housing as a national crisis for the low-income groups,” asserts Mr Ojijo. “Due to the high cost of land and insufficient government incentives, developers are giving a cold shoulder to low-income earners and concentrating on developing houses for the middle and upper classes because these are the niches in which they can make a profit,” he adds.
He says low-income earners, need alternative modes of financing to enable them to afford decent housing. “If the government can provide mortgages to civil servants at an interest rate of 3 per cent per annum, why can’t it make it possible for low-income earners to access mortgages at say, 6per cent?” he wonders.
Review of city hall’s valuation roll could raise land rates
13/10/2016 : The Daily Nation,DN2 Pg 4
- City Hall has begun reviewing its valuation roll in what could see property owners in Nairobi pay more in land rates.It has contracted Geomaps Africa, a valuation firm, to undertake the process alongside an 11 man team of county valuers.
- The development of the draft valuation roll will see the county government update the value of land across the city and determine how much should be paid in land rates.
- “The Nairobi city county government gives notice that the mentioned draft valuation roll is under preparation and will cover all reteable properties within the jurisdiction of the county,”a public notice by city hall says
- The current draft evaluation roll is more than 30 years old, making it ineffective in capturing the value of land, which has changed over the years in different locations.
- The new valuation roll will be based on the value of undeveloped land (unimproved site value)
- Currently, property owners pay rates at 34 % of the unimproved site value based on the 1980 valuation roll, which apportions the worth of land depending on its location, with plots in the central business district and high end locations like Karen attracting higher charges than those in Eastlands
Montave all out to be game changer in Upper hill
13/10/2016 : The Daily Nation,DN2 Pg 4
- Nairobi’s Upper hill, which was once a leafy and serene residential area, has metamorphosed into a veritable commercial hub, hosting some of the most competitive businesses not just in Kenya, but in East Africa.
- Leading commercial banks, multinational companies and insurance companies have established their headquarters or regional hubs in the area.
- As a result, the city’s address of choice now hosts a number of skyscrapers, among them Parliament tower, Britam tower, Prism Tower, Upper hill Chambers, Avic international and Hass towers.
- But is it Montave, a high end mixed use development will add more than 1 million square feet of space comprising residential, commercial and office space.
- The shs 1.83 billion Montave will sit on a 3.54 acre parcel of land at the junction of Lower Hill Road and Haile Selassie Avenue. Construction will begin in the second half of 2017 and is expected to be completed in three years.
- “Market demand is highest for developments that have enveloped high end commercial, retail and leisure offerings on one site as they can attract Strong footfalls. Such properties will command price appreciations of up to 40% above the average market rates ” said Ms. Hassanali
Growing need for housing, rising cost of land see Kisumu’s Milimani Estate lose its serenity
13/10/2016 : The Daily Nation,DN2 Pg 6
- The need for more housing, coupled with the rising cost of land, is slowly changing the face of the once serene Milimani Estate in Kisumu.
- The Estate was designated a low-density residential area and boasted bungalows and maisonettes with sizeable compounds. However, several high-rise buildings and apartments are now part of the landscape.
- Kisumu County Director of Housing Mr Ben Osewe said investors were seeking to maximize use of the prime land as the demand for higher density settlements, office space and other infrastructure increases in the area due to its proximity to the central business district (CBD).
- “Milimani is no longer a purely residential place. It is a mixed-use zone,” he said. “If a piece of land costs Sh50 million, there is no way an investor will put up a bungalow or two storeys only. It would not make business sense. That is why it is changing from a low- to a high-density area,” he said.
- But the Kisumu County Executive for Land and Housing, Mr Derrick Obura, said those putting up high-rise buildings were breaking the law.
- “Zoning has not been scrapped but some developers took advantage of the vacuum that existed when the defunct municipal council was winding up before the county government came in to put up those buildings,” he said.
- He, however, said there are proposals to have some sections of Milimani incorporated in the CBD’s high-density area. The Kisumu Integrated strategic development (ISUD) Plan seeks to allow the construction of buildings of up to 12 storeys from the current three in the estate. Read more
Property prices in Nairobi recorded sustained growth as per the Q3’ 2016 House and Land Prices Indices report by Hass Consult.
16/10/2016 : Cytonn Weekly Report No. 41
- Properties in Nairobi and its satellite towns have recorded sustained growth in prices, albeit at a decreasing rate over the first three quarters of this year. According to the recently released Property Price Index for Q3’ 2016 by Hass Consult, property prices and rents in Nairobi recorded quarter on quarter growth of 1.2% and 7.0%, respectively. Key take-outs from the report were:
- Asking prices for houses in the suburbs outpaced those of satellite towns, growing by 1.2% compared to the 0.9% growth in satellite towns during the third quarter;
- On the other hand, growth in land prices in satellite towns rose by 7.0% compared to that of land in Nairobi Suburbs at 1.4%. This is attributed to the fact that investor preference is skewed towards buying developed property in the suburbs with the intention of renting in the short-term and selling in the long-term, while land in satellite towns attracts investors who wish to benefit from the high land capital appreciation in the long term driven majorly by the ongoing infrastructural development; and,
- In Q3’ 2016, Juja area recorded the highest price increase at 14.5% among satellite towns followed by Limuru at 12.4% and Ruiru at 11.2%. Price appreciation in these areas is majorly driven by impending infrastructural development.
- Demand for real estate has continued to push prices as investors shy away from other asset classes with lower returns, and move towards real estate which offers returns of up to 25.0% p.a. on average for those who invest at development stage, and rental yields of up to 12.0% p.a. on commercial buildings built to let. In cytonn’s review land prices will continue to increase in areas experiencing infrastructural development such as the Western By-pass and the expansion of Machakos Junction – Rironi highway which has already been commissioned. The areas that are likely to experience an increase in land prices include Kikuyu, Rironi, Gachie, Ndenderu and Ruaka.
- The Kshs 12.5 bn, Infinity Industrial Park, being developed by Abacus Group, along the Eastern Bypass in Nairobi was launched during the week. The 200-acre development will feature manufacturing plants, wholesale outlets, go-downs and other support services such as banks and retail outlets. The project will not only create a conducive environment for local manufacturers and alternative locations compared to the congested Industrial Area but will also provide leasing space for SMEs and create job opportunities. Read more