MIP WEEKLY CONSTRUCTION INDUSTRY REPORT NO.36
PERIOD: APRIL 25 to MAY 1, 2016
Improving renting conditions is a good way of solving housing crisis
25/04/2016 : The daily Nation, Page 42
- Real estate has emerged as the preferred port of call for looters and economic growth now wholly relies on an overheated the local property markets.
- The money trail from several local scandals has ended up parked in high end apartment and office blocks. Even more malls built locally were built using foreign aid money.
- The economic rebasing that happened two years ago showed that property is now a bigger contribution to the national bottom line than manufacturing.
- The fact that speculators are buying overpriced houses and leaving them empty as safety deposit boxes should worry the locals.
- Nairobians should know to live in this city; you will have to compete with Eastern Africa. Eastern Africa has come to the capital. We are a good fit; we speak English and are very relaxed about dirty money. Even Osama Bin Laden at one point owned fishing boats.
Dubai group lifts Nairobi’s skyline with 35- Storey tower
25/04/2016 : The Business daily, Page 1
- A Dubai based investor has launched an ambitious plan to build a Sh5.52 billion towering complex in Nairobi comprising a shopping mall, office block and a hotel modelled on Singapore’s Iconic Marina Bay Sands Hotel.
- Abcon International LLC, a real estate and drugs company, has teamed up with six local investors to develop the property on a 3.57 acre piece of land it acquired at a price of Sh650 million four years ago.
- The 35-storey skyscraper will be located in the city’s commercial district of Upper Hill. The mixed-use development will also feature luxury apartments and an amphitheater.
- Commercial districts like Upper Hill and Westlands, on the peripheries of central Nairobi, are turning into big construction sites as investors eye handsome returns from demand for top grade office and retail space.
- Britam, UAP, Equity Bank, CBA, KCB Bank, Coca-Cola and UAP are some of the firms that have offices in the area or are constructing skyscrapers for letting out space.Read more
Kenyan houses are unreasonably expensive
25/04/2016 : The Business Daily, Page 3
- Hass Consult, a Kenyan real estate consultancy, says Sh29 million was the average price for houses and apartments in the middle and upper market at the end of 2015.
- Very few Kenyans can afford a house at the amount. According to a 2013 World Bank survey, 75 per cent of households in Nairobi, one of Kenya’s wealthiest counties, had monthly incomes below Sh22, 500. These households can only afford a mortgage of up to Sh500,000
- Why don’t formal developers build decent, safe, and sanitary homes that more families could afford?
- Construction costs are 30 to 40 per cent higher in Kenya than in many other countries. In part because builders target the high-end of the market, work on small volumes, hence, they are unable to take advantage of economies of scale in building methods and materials procurement. Kenyan residential projects rarely exceed 250 or 350 dwelling units in a given construction phase, and few projects rarely reach 1,000 units in total. Even if a few builders were to deliver 5,000 to 10,000 units each year in large scale projects, they would still be addressing only a part of the 200,000 units needed each year in Nairobi alone. But, such scale would reduce construction costs significantly, and create tens of thousands of jobs in the process, as is done in India, China, Colombia, and other places.
- Second, Kenya’s slow and costly property titling system makes housing more expensive. The sub-division process for large tracts of land can take years and costs hundreds of thousands of shillings in legal fees.As a result, if a builder were to construct a dwelling unit in a week, it would still take over two months to legally register the sale of the unit to the buyer, and even longer to register a mortgage lien if the buyer is unable to pay cash.
- Third, urban land costs are very high given that developers often have to install the infrastructure for water, sanitation, and roads. The high cost of providing infrastructure makes serviced land count for as much as 60 per cent of total development costs in Nairobi.County governments often lack the resources to provide this essential infrastructure, even to the edge of land parcels to be developed, as would be the normal practice in most countries.Read more
Tanzania builds east Africa’s longest cable stayed bridge in capital city
23-29/04/16 : The East African, Page. 2
- A cable stayed Bridge, described as East Africa’s longest, has opened in Dar es Salaam to ease over- crowding on ferries.
- The 680m bridge links the city centre with southern neighbourhoods across the Indian Ocean.
- The bridge has been constructed by a chinese firm at a cost of $135 Million. It links the one dormant beach areas of kigamboni with the CBD. It expected to stimulate new businesses and settlements in Kigamboni, the upcoming tourist and luxury satellite on the other side of the city.
- The national Social Security Fund paid 60 per cent of the construction cost.
Why the chinese are edging out local construction firms
28/04/2016 : The Standard, Home and Away, Page 2
- The Impact of Chinese contractors are starting to be felt as many local contractors miss out on mega projects. According to the World Bank, about 400 Chinese firms operate in Kenya ranging from manufacturing (automotive), food, building and construction, consumer electronics and communication equipment among other sectors.
- But it is their entrance into the construction industry that has left Kenyan contractors a worried lot. According to David Mathu, a quantity surveyor and research and business development manager with the National Construction Authority(NCA), there are conflicting perspectives on the increase of the Chinese construction business in Africa and in particular, Kenya.
- But why are Chinese winning most of these mega contracts?
- Most projects run by their firms are done well ahead of schedule.
- Confidence in their work is another factor. The Chinese firms provide high quality and competitively priced work in the construction sector
- However, the government through the NCA has come up with measures to ensure that local contractors benefit from contracts won by Chinese firms. Under the new law foreign firms would be required to ensure that a minimum of 30 per cent shareholding of their local operations go to local contractors.Read more
Githurai is Nairobi’s most affordable housing market
28/04/2016 : The Standard, Home and Away, Page 2
- Githurai is the most affordable residential area in the mortgage market, with households requiring median income of between Ksh 25,000 to ksh 50,000 to purchase a house. According to the Nairobi Metropolis Affordability report by Cytonn Real estate, Embakasi, Githurai, Komarock and Kariobangi are the most affordable rental markets in Nairobi.
- The report aims at informing households on the areas that area affordable to purchase homes with mortagages or rent houses.
- Areas such as Nyari, Karen, Runda, Muthaiga and Kitsuru are the most unaffordable mortgage markets with households requiring a minimum to purchase a house through mortgage option.
Why developers are not worried about housing oversupply
28/04/2016 : The Standard, Home and Away, Page 2
- Various reports coming out in the last few months have painted a picture of an oversupplied market, especially in the retail, office space and to an extent, the upper-middle income housing segment.
- Any increase in housing stock is good news to prospective buyers and renters. But are developers spending sleepless nights worrying about the slow uptake of their property? While the slow rate of returns may seem to hurt developers, most of who rely on borrowed funds to put up the projects, insiders say the situation is yet to reach the tipping point. They point to the fact that real estate is a long-term investment rather than a get-rich-quick scheme.
- Woodhams says Kenyans have to understand the dynamics of the local market when viewed against other major sector players on the continent.
- He says that though Nairobi has been touted as one of the most desired destinations for real estate investment, it is not the biggest. “The continent is headquartered in Lagos and Johannesburg. Compared to the two, we still have a long way to go before we can say the market is saturated or oversupplied. True, a temporary oversupply, especially in 2015, does not in any way reverse the demand,” says Woodhams.
- According to him, the market was suppressed last year due to global economic upheavals, especially in the energy sector with aftershocks felt in the real estate development. The dip in oil prices, he says, was a major factor locally as some prospecting companies that had set shop in Kenya scaled down their investments.Read more
Alexander Forbes to put up 20 floor building in Westlands
28/04/2016 : The Daily Nation, Page 44
- Alexander Forbes restaurant Fund is to break ground on a 20 floor twin tower building in Westland, Nairobi, In July to tap in to the growing demand for office space in the area.
- Regulatory filings show that the Ksh 1.84Billion structures will mostly house offices, but will also offer retail and commercial rental space.
- The office block follow similar developments in the area that has in recent years become a favourite for firms escaping the congested central business district.(CBD)
- The office Block will be located at the junction of General Mathenge Drive and Peponi Road on a one acre piece of land.
- The project will undertake in two phases.
Joint Venture Arrangements and their benefits.
28/04/2016 : The Daily Nation, Page 45
- As more Kenyans seek ways of owning property, joint venture agreements are becoming increasingly popular. Joint ventures are agreements between land owners and investors that aim at developing real estate property.
Factors to consider when entering into a Joint Venture Agreement.
- The land owner should verify the credentials of the investor he/she intends to partner with to ascertain their record in project development. This should include the availability of the resources, as well as the property and human capital the investor will be bringing to the venture.
- It is vital for both parties to ensure that a properly drawn up and duly signed contract is in place before they start spending any money ( in the case of the investor) and before surrendering the title to the land for transfer(in the case of the land owner)
- Profit/revenue expectation – It is important for the parties to clearly state what their expectations at the end of the project are.
- Cultural and religious differences-If the parties ina joint venture come from different cultural and religious backgrounds with significant disparities in the way they conduct business, it is important for them to factor in each other’s religious orientation as it affects the mode of operation
Benefits of a joint venture agreement
- Access to expertise, more resources and finance
- Access to larger markets and networks
- Room for flexibility – Each company can maintain its identity and return to normal business once the joint venture is complete.
- Accessing previously inaccessible businesses – By collaborating with an established company, land owners not only gain from the expertise of these companies, but also increase their credibility in the eyes of the public and potential buyers.
- Save threatened property – Joint ventures arrangement have seen many properties rescued from imminent auctioning by investors who come in and shoulder/ clear encumbrances. Read more
Hospitality, industrial, lower middle and low income residential sectors continue attracting investments
01/05/2016 : Cytonn Monthly Report – April
- During the month, there was an increased focus in the residential and hospitality sectors. Increased investment into the lower middle and low income residential segments by developers was driven by the need to satisfy the high demand for low-end residential housing and the high returns in this segment with yields of about 6.7%.
- Some of the developers in this segment include Kenya Projects limited who broke ground on a low-end residential product in Ruiru. The Kshs 100.0 mn development will consist of two bedroom semidetached units each costing Kshs 2.5 mn. Cytonn Real Estate also broke ground on The Alma, a signature development in Ruaka targeting mid-income earners
- The hospitality industry is also picking up especially with improved security and government support. This month Chinese developers launched serviced apartments in Kilimani. The project dubbed “Soho Apartments” will be an 11-storey building with a Kshs. 1.8 bn project cost. Serviced apartments are becoming increasingly popular due to their home feel and convenience as well as relatively lower costs as compared to hotels.
- Swiss International hotels also made its debut to the Kenyan market in a partnership with Mount Kenya Homes Limited. The two will construct a 5-star hotel in Naromoru with a project cost of Kshs 7.0 bn.
- The major challenges facing the industry remain high land, infrastructure and financing costs for both developers and buyers. However, with expected returns of more than 20% p.a. Real estate still remains the best investment asset class in the country especially as the stock market continues on its bearish run. Read more