How the Covid-19 crisis has affected real estate in Kenya

Kenya’s real estate just like any other sector of the economy has taken a plunge due to the new normal occasioned by the Covid-19 pandemic. Over the past few months, the sector has undergone enormous disruption and economic shocks all ascribed to lockdown measures and shrinking disposable incomes or purchasing power by the majority of the population.

The paradox is that only early this year the sector was projected to post tremendous growth due to the fact that it had begun showing signs of improvement or recovery the previous year after a weary growth that was witnessed in 2017 and 2018. According to a Cytton report published earlier last month, the real estate sector was beginning to recover from the slow growth of 2017 and 2018 as quoted from the Kenya National Bureau of Statistics’ Economic Survey of 2020 which had indicated that the sector grew by 5.3 in 2019, a 1.2% rise from the previous year’s 4.1%.

It further indicates that real estate recorded moderate activity with average rental yields improving slightly by 5.2 % in the residential segment and by 7.8% in the commercial office segment from 5.0% and 7.5% of the last economic survey of 2019. On its part, the retail sector saw a 0.1% plunge on the same benchmark to 7.7% from 7.8% of the last quarter of 2019’s economic survey.

Effects of the Pandemic

The Covi-19 pandemic crisis whose outbreak was first reported in Kenya early this year in March has affected this key sector of the country’s economy in a myriad of damaging ways which include the following.

  • Firstly, the pandemic has contributed to longer development periods. This has been occasioned by a reduction of labour or human resource as well as the interruption of the supply chains. As a result, investment activities have paused for abnormally long periods, moved at a snail’s pace or completely stalled.
  • Secondly, the crisis has occasioned the closure of public offices: This has seen or contributed to a slow rate of approvals of buildings since key or essential real estate liaison offices such as land registries have been closed indefinitely.
  • Again, the pandemic has hugely contributed to the slowing down of construction activities. The pandemic has added to the withholding of cash by developers out of nervousness or fear of an otherwise precarious situation. This is because the developers fear that market liquidity is poised for a major decline.
  • In addition, there has been a decline in terms of collections especially for the people who have bought off-plan real estate property on instalment plans since the crisis has largely imperilled livelihoods or entirely destroyed people’s means of income.
  • Furthermore, the suspension of funding by banks and other mortgage providers as a result of the closure of the land registry also portends gloom for the real estate sector.
  • Lastly, the real estate sector has tumbled owing to what can be termed as general risk aversion in risk analysis jargon. Generally, people or investors are ever wary of crises and their aftermath. This pandemic is no exception and investors or developers have been extra cautious with their cash or investments.

A silver lining

Nonetheless, it’s not all gloom and doom for Kenya’s real estate industry. The government of Kenya continues to be very supportive of the industry through a raft of reform measures geared towards cushioning the sector through the necessary and relevant pieces of legislation and regulations. It has, for instance, adopted the lowering of the Central Bank Rate to increase the available cash for lending and again announced a Ksh 53 billion stimulus package. This regulation seeks to offer soft loans to hotel and attendant ventures through the Tourism Finance Corporation, therefore, stimulating the hospitality industry.

The Tax Laws Amendment Act 2020 which is an amendment to the Retirement Benefits Act will allow the use of pensions and savings towards buying homes as well as accessing mortgage loans. At a time when people’s livelihoods have been largely imperilled by the Covid-19 engendered economic recession, such a policy measure is timely and comes in handy to rescue the sector.

Again in such a bleak age when key government offices such as land registries have been closed owing to the Covid-19 pandemic, the government has come up with Business Laws Amendment Act 2020. The act takes into cognizance and allows the use of technology and welcomes electronic signatures as a lawful and valid means of execution of official documents. Such a measure will definitely improve the way and ease at which land transactions are executed.

Shaping the future

The Covid-19 pandemic is expected to shape the future of the real estate sector after the crisis is over owing to its implications on economies and other life’s aspects.

It’s anticipated that this will persist for a given period in the future and will both affect and influence the real estate in unusual and rare ways which will translate into far-reaching ramifications for the sector.

Conclusion

The real estate will, however, recover after the virus. But this recovery will be hugely suppressed due to the diminished and jeopardized livelihoods as well a change of priority by potential investors. In spite of all the bleakness, the sector is poised to bounce back soon probably by early next year according to some pundits and risk analysts.

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