The provident fund will construct an additional 34 floors on the four-storey Hazina Trade Centre, currently housing retail chain store Nakumatt Lifestyle. Fredrick Onyango
The National Social Security Fund (NSSF) has strengthened its hand in the property market with plans to build a 38-storey office block in the city centre as it seeks to reap from the real estate boom.
The provident fund will construct an additional 34 floors on the four-storey Hazina Trade Centre, currently housing retail chain store Nakumatt Lifestyle.
Cost Sh2 billion
The project is expected to cost Sh2 billion and once complete, the building will match Times Tower as the tallest buildings in East and Central Africa.
High returns from the property market are egging the fund to invest billions of shillings in construction of residential houses and office blocks to boost returns it pays to retiring workers.
Real estate is outperforming other asset classes such as equities and fixed securities prompting investors and corporates to revise their investment plans to include property.
“The additional 34 floors will ensure optimal use of the available vertical space. This plan approves the development of the trade centre which is suitable for the site being in the central business district of Nairobi,” said the fund in an environmental impact assessment plan sent to the National Environmental Management Authority. The planned office block is not only expected to change the skyline of the Central Business District, but will mark the first major construction project within the city centre as investors seek other construction zones due to lack of land.
Besides the mega-office block, the provident fund is scouting for investors to help develop middle-class homes in a 960-acre piece of land in Mavoko and high-end houses in 3.5 acres as its opts for joint ventures for its real-estate plans.
The fund has decided to turn to joint venture due to the huge financial requirements for the projects and need to remain within regulated investments threshold set by the Retirement Benefits Authority (RBA) of 30 per cent of its total assets.
The fund in June had assets worth Sh104.2 billion with property accounting for 31.7 per cent or Sh33 billion.
CFC Stanbic says that property prices have risen 3.5 times over the past decade compared to share prices appreciation of 2.42 times over the same period and NSSF is betting on the property market to help it deliver an annual return of at least five per cent to those saving for retirement.
In the past five years, the fund has relied heavily on the Nairobi Stock Exchange (NSE) and government securities for returns.
The sharp rise in the price of homes and rental income is being driven by the region’s rapid urbanisation, population growth and expansion of the middle class. Short supply for office blocks and shopping malls because of huge capital required and expensive land that has kept developers out of this segment of the market.
Demand outstrips supply
“Demand for commercial retail space far outstrips the supply, and that is the reason shopping malls are attracting the highest rental yields,” said Maina Mwangi, a director at Frank Knight— a commercial property agency.
In Nairobi, tenants taking up spaces measuring less than 1,000 square feet are paying a monthly rent of between Sh200 and Sh250 a square foot from between Sh100 and Sh120 in 2006.
To tap this market, NSSF will provide its undeveloped land, estimated to be worth Sh6 billion, and part financing in joint ventures with private investors.
In return, it will earn capitals gains from the sale of the houses or earn rental income.
