5 Factors Affecting Real Estate and Property Development in Kenya

As HomesKenya magazine sat down with Mr. Daniel Ojijo, the Executive Chairman of Mentor Holdings, to speak about what to expect in the real estate sector in 2013. The following are five key factors that he believes will affect the growth and development of the sector this year.

1 Housing Demand
Despite challenges that began in late 2011 owing to a weakened shilling, the prospects for the real estate sector in the long-term appear promising. For investors who are eyeing the market now, it is always safer to conduct thorough due diligence on properties of interest so as to avoid fraudulent cases. Nevertheless, the huge demand for housing will continue in 2013, owing to the fact that there is still a huge housing deficit in this country. The mortgage market is set for tremendous growth over the next decade, both in Kenya and the region. The key factor is the rates of interest charged

2 Government Incentives
So far, the incentives introduced have not been sufficient enough to make housing affordable to the lower income group where the demand is high and the supply is critical. As was the case in 2011, the government has plans to offer more incentives in 2013, to accelerate growth in the property market. Budgetary allocation will be enhanced as well as sourcing of funds from development partners to assist in providing cash needed to stimulate construction of affordable houses to meet growing demand.

In 2010, the Ministry of Housing revised the incentives although this may not have been enough. Talks on how to provide more incentives in the sector have been held with Treasury and there’s hope that this will be captured in 2013. Current incentives should be expanded to cover more areas. This is geared towards stimulating more investments as well as taming imbalances in the market.

3 Interest Rates
The interest rates are expected to reduce as pressure is put on the Central Bank and other banks , investors, developers, bank customers and other stakeholders. There is a lot of competition that banks are facing from SME financiers and money-lending is becoming a popular business outlet at lower interest rates than the mainstream banks have been offering. Co-operative Saccos are giving banks a run for their money and Chama Accounts are opening everywhere in the country. With this kind of healthy competition, interest rates cannot remain high much longer.

4 Land Regulations
There is plenty of lobbying by non-government bodies and the CIC is in the process of implementing the land regulations. We expect the changes to come gradually and even though it has taken more time to make the bills into Acts of Parliament for some of the land bills and hence the implementation of the same, we consider the timelines earlier set to have been too short because they did not give ample time nor the necessary release of funds for the grass root awareness movement. We believe that laws are made for the people and that the people should have a chance to understand what they entail. We also agree with CIC that rushing to meet a deadline will not necessarily ensure that good laws are created. The regulations are necessary but all possible input from stakeholders must be collected and analyzed thoroughly before they are made into law.

5 Rates of Inflation
Recent reports indicate that the rate of inflation has also started to reduce. According to the Finance Minister Uhuru Kenyatta, Kenya plans to cut inflation to five percent by 2014/15 through austerity measures to reduce its budget deficit, accompanied by a tight monetary stance.

Statistics show that year-on-year inflation rose for 13 straight months to peak at 19.72 percent last November, before easing to 18.93 percent in December after the central bank raised rates aggressively and good rainfall pointed to an improvement in harvests. The shilling fell against the dollar for most of last year mainly due to a widening trade gap, amplified by global increases in fuel prices and a drought that ravaged the Horn of Africa, feeding through to higher inflation rates in the region. The government aims to lower its budget deficit to 5.1 percent by 2014/15 from this fiscal year’s 6.1 percent. The decrease in cost of fuel should see the cost of inflation also come down considerably.