Kenyan mortgage financiers flush with liquidity have been more than glad to finance building and construction projects.
A resilient building and construction sector is providing growth avenues for dependant industries, a factor attributed to the rising demand for housing in the middle market sector.
Mortgage financiers, listed cement and paint manufacturers registered a rise in revenues for the first half of the year, chalking up figures that seemed in contrast with the prevailing subdued economic environment.
Market players tie this growth in revenues to a surge in building and construction over the last one year as the number of individual home developers rise and investors shelter in property as an investment havens.
Slowing global and local economies have eaten into equities and fixed income investments.
Kenyan mortgage financiers flush with liquidity have been more than glad to finance building and construction projects.
“As things stands today, demand for property more so in the middle and low end market supersedes supply and this is unlikely to change any time soon,” says David Maveke, the head of mortgage finance at mortgage financier Housing Finance Kenya.
The latest data from the Central Bureau of Statistics indicates that the Nairobi City Council for instance approved Sh19 billion worth of building plans for the first three months of 2009 compared to Sh12 billion within the same period last year.
Property developers expect this trend to continue despite the harsh economic environment especially in the middle and low end housing projects.
“Homeownership projects still take up a large portion of loan books. Prospective homeowners are realizing that the cost of constructing a house is a cheaper option when compared to open market prices,” says Mr Maveke.
Nairobi’s residential market has seen considerable development in recent years, particularly in the mid-market sector.
An increase in the demand and consequent construction of middle income housing estates such as those in Kitengela and Athi River have been crucial drivers for the demand for housing materials.
Cement consumption, one of several significant early indicators of economic activity under the building and construction industry, increased by 38 percent from two million metric tonnes in 2007 to 2.7 million metric tonnes in 2008.
In January – May 2009, however, cement consumption fell by 13,213 metric tonnes, equivalent to 1.3 percent from 1 million metric tonnes in January – May 2008, reflecting a marginal decrease in economic activity.
Yet even with this fall in consumption, cement manufacturers recorded a rise in revenues as prices edged up on a spike in demand.
Bamburi Cement for instance recorded an increase in revenues of 45 per cent to Sh16 billion in the first half of the year compared to Sh11 billion the same last year.
ARM’s management attributed the increased sales of 16 per cent to price increments as the company is operating at near full capacity in most of its product lines with cement constituted 50 per cent of sales.
Slow sales in high end market
But while demand in the middle and low end property markets looks to be thriving, movement of property in the higher end of the market is coming under strain.
According to a research report by property developers Knight Frank, there are signs that the global recession is beginning to impact on demand for residential property, with banks reducing mortgage lending and buyers delaying purchases in the expectation of a fall in prices.
“Houses are still being sold, but it is taking longer to complete transactions and it has become particularly difficult to sell houses with price tags over Sh25 million ($325,000),” says the Knight Frank 2009 Africa report.
The Knight Frank report has also expressed concerns in commercial property pointing to a possible price drop in office space as supply outstrips demand.
Demand for space Over the years the demand for office space in Nairobi has grown remarkably especially in the high-end of the market towards Upper Hill and other areas such as Westlands and along Mombasa Road.
And as firms rode on the steady economic growth raking tidy earnings in the process, many were willing to pay premiums above the market rates for prime office space.
According to Knight Frank, a shortage supply during 2008 caused landlords to seek considerably increased rents for the office space coming onto the market in 2009.
Now however, there is a large amount of new good quality office space expected to be released over the next 18 months which began construction in 2007.
“In light of this, there is a risk that the market will swing back into oversupply, as the new space may struggle to be filled due to weakening demand from local and international companies,” says the Report.
Kenyans abroad have in the past been major drivers of demand in the local housing market.
But as easy money continued fuelling new housing developments and encouraged buyers to take up mortgages, demand from the diaspora has not kept pace with the excess supply.
This money sent home by Kenyans living abroad had been a key driver of property prices, especially in the high end market.
While demand for housing, especially in the middle and low income brackets, gains traction, sales in the higher end of the market are coming under pressure.
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