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Economy

Real estate fails to recover as cement use hits 4-year low

A construction site in Nairobi
A construction site in Nairobi. FILE PHOTO | NMG 

Cement uptake in six months to June 30 fell 7.9 per cent, signalling a slowdown in the property market, which started last year in the wake the General Election jitters, is yet to recover after more than decade-long boom.

Data from the Kenya National Bureau of Statistics (KNBS) indicate cement consumption in the first six months of the year stood at less than 2.75 million tonnes, down from 2.98 million in 2017.

Consumption hit a four-year low after rising to a peak of 3.1 million tonnes in 2016 at the height of construction of the first phase of the standard gauge railway (SGR), Kenya’s single largest post-independence infrastructure project.

Cement firms also reduced production during the period to 2.84 million metric tonnes from 3.18 million metric tonnes a year ago.

This is an indicator the property sector is still reeling from last year’s slowdown when investors suspended projects fearing the outcome of the prolonged electioneering period.

Production of galvanised iron sheets also went down by 6,500 tonnes to 111,562 metric tonnes, the data shows.

“The sector’s growth albeit slower than that of the corresponding quarter of 2017 was driven by the ongoing public infrastructure projects such as roads and phase two of the standard gauge railway as well as the continued development of buildings,” the KNBS said in first quarter 2018 report.

This signalled reduced activity by private sector players who have in recent years poured billions into the property market in search of higher returns.

Housing has been one of Kenya’s fastest growing sectors over the last decade, with returns from real estate outpacing equities and government securities. This attracted high-net-worth investors into the sector.

A slow down on the growth of private sector credit is also hurting real estate, which heavily relies on bank loans for unit purchases.

Banks reduced credit following the introduction of a cap in loan rates in September 2016.

Central Bank of Kenya earlier cited the slow rate of uptake of newly built malls by tenants, saying this had compounded the repayment challenge for investors.

A dip in prices and the slow uptake of newly-built units have raised fears of renewed pressure on developers, who borrowed to fund for-sale projects as obligations mature.

Some experts have warned that the retail property market faces an oversupply. The reduced activity has hurt cement firms.

Bamburi, reported a 66.50 per cent dip in net profit for the year ended December to Sh1.97 billion, while ARM Cement’s loss widened 133.9 per cent to Sh6.54 billion.

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