Private sector credit
Credit: bitcoinmagazine

Progress has been a winding path for the real estate sector this year. While notable progress has been made, the elections, credit rationing by banks and other macro-economic factors have supplied consistent headwinds to the sector over the past 12 months or so and even more recently. As a result, growth has been hampered significantly in many parts of the economy.

According to KNBS in their October report for Leading Economic Indicators, the value of buildings approved for construction by Nairobi County in the first seven months of 2017 declined by 18.4% to Sh149.5 billion down from Sh183.2 billion in the same period last year. This quantitatively, is a loss of Sh. 33.7 billion from the economy.

The report also highlights the decrease in cement consumption in the country by 6.63% from 4.69 million metric tonnes to 4.38 million metric tonnes in the first nine months of the year to September 2017 compared to the same period last year.

Curiously, the quantity of cement produced rose from 451,651 metric tonnes in August 2017 to 477,571 metric tonnes in September, 2017 while the consumption of cement went up from 427,594 metric tonnes to 453,198 metric tonnes during the same period. This is important because cement consumption is a key indicator of building activity in the economy.

The year has also seen a decline in the volume of imports of construction materials such as iron and steel, and cement by 28.9% and 27.1% respectively. These are major inputs in the construction industry hence this points to a slowdown in the sector.

Both commercial and residential building developments also declined with the value of residential buildings approved down to Sh. 88.5 billion in 2017 from Sh. 107.2 billion last year, while commercial building approvals dipped to Sh.61 billion in 2017 compared to Sh76.1 billion last year. Credit to building and construction activities declined by 1.2% in 2017. This reflects further the relatively less activity in the sector during the second quarter of the year.

Although demand for housing continues to outpace supply, current market constraints are also as a result of developers focusing on the wrong market segment. This has created a flood of space in areas where there are not enough occupants to fill the space.

In summary, the combination of downward pulling forces have been significant enough to shake the market, going by the numbers, but fundamentals remain relatively strong. The coming year should present more optimism with the elections past and conditions expected to turn to normal.

However, the effects of the election scare may extend into the first quarter of 2018 while it is not clear when the market correction for the glut created over the past 12 months especially in high-end locations may be come to effect.