Construction has slowed in the country by double rates since 2016. This is according to the most recent leading economic indicators report released by the Kenya National Bureau of Statistics in late last year which highlights cement production and consumption trends in the country up to the month of October.
The report indicates that in the first 10 months of 2018, the construction industry consumed 295,660 metric tons less than that consumed in 2017 and a further 661,458 metric tons less in comparison to 2016. According to the data, cement consumption in 2018 declined by 6.1 per cent compared to 2017 and 12.6 percent compared to 2016.
Similarly, the report shows a fall in the value of building plans approved in Nairobi City County during the same period in 2018. The total value of building approvals by the Nairobi County in 2018 for the period in the 10 months fell by 21.5% to KSh. 169.2 bn, from KSh. 215.5 bn recorded in a similar period in 2017.
Nairobi County accounts for a significant amount of building activity in the country hence the high value of building plan approvals. The report shows that the month of October recorded the lowest value for residential building approvals in 2018, with KSh. 9.7 bn compared to KSh. 22 bn recorded in the same duration in 2017.
The building industry underwent a lot of upheavals including actual and feared demolitions by the authorities which may have created a lot of uncertainties for investors in the strength of regulatory approvals. There was also marked oversupply in certain segments of the market like retail, commercial and high-end residentials, which subsequently resulted in price corrections.
Furthermore, the reduction in construction activity can be attributed to the long-standing adverse credit conditions initiated by the rate cap law, where financial institutions have implemented a tighter lending environment to stem risk.
In 2018, fresh appeal by a section of stakeholders and MPs for parliament to pass an amendment to the law fell on deaf ears as the bill failed to sail through. And the just updated realization that real estate developers were the leading loan defaulters according to a Central Bank report does not help matters much.
Consequently developers and investors are forced to move into the New Year with the above perspective and expectations of the operating environment. Despite the bottlenecks and drawacks, the markets were as active as ever with more than a dozen sizeable projects announced, some of which are due to be kick started in 2019.