Why real estate has performed impressively

The real estate sector recorded notable activities in the first quarter of this year (Q1’2022) compared to a similar period in 2021. That is attributable to the recovery of the economy, enabling increased real estate property transactions and boosting investor confidence.

Key factors that have continued to shape the performance of the real estate sector include continued focus on affordable housing by both the government and private sector; efforts by the government to provide affordable mortgages through the Kenya Mortgage Refinance Company in a bid to increase home ownership; and resumption of business operations by firms supported by the improved operating environment.

Others are positive demographics, evidenced by the country’s relatively high urbanisation and population growth rates; improved infrastructure, opening up areas for investment, such as the Nairobi Expressway and Nairobi Western Bypass projects; and aggressive entry and expansion by local and international retailers such as Naivas, Quick Mart and Carrefour, taking up the place of troubled retailers like Tuskys and Nakumatt.

Reduced lending

But a couple of challenges impede the sector’s performance. They include, first, reduced lending to the real estate sector, evidenced by a 3.9 per cent decline in gross loans advanced to it to Sh456 billion in FY’2021, from Sh439 billion in FY’2020.

This is attributed to an increased number of non-performing loans (NPLs) in the sector by 21.6 per cent to Sh74.7 billion in FY’2021, from Sh61.4 billion in FY’2020, show Central Bank figures with the increased real estate loan default rates being driven by the tough economic environment,

Secondly, increase in prices of construction materials such as steel, paint and cement, which is expected to cause slowdown in the sector. Thirdly, travel advisories on the country which is expected to have a downturn on the performance of the hospitality sector, such as the travel advisory by the UK, citing heightened threat of terrorism in Kenya.

Lack of knowledge  

Fourth, a shift towards e-commerce affecting demand and uptake of physical retail spaces and continued poor performance of the Reit market in the country due to lack of knowledge and interest of the financing instrument by investors.

Despite the limitations, real estate registered increased activities in Q1’2022 and remains an attractive investment class. But 2022 being an election year, there might be a slow-down in market prices and sales volumes since investors and prospective buyers may adopt a wait and see approach.

The impact of that is temporary and the market is likely to stabilise on the back of relatively strong GDP growth and an attractive demographic profile.

I call upon the government and businesses to continue supporting this sector to realise more economic gains. This progress should be continuous.

Mr Wamayuyi is an economic researcher. [email protected].