Prospective investors in Kenya’s real estate and stockmarket have been left with limited choices of where to put their money as a combination of economic and political factors continues depress.
Industry experts who talked to The EastAfrican said returns on the stocks and property markets have flattened and investors are now moving their money to short-term, risk-free Treasury bills and bonds, which guarantee a fixed rate of return.
The returns on the 91-day Treasury bill stood at 7.91 per cent last week while a two-year Treasury bond attracted a 12 per cent return.
“There has been a perception that the real estate sector has slowed down. That is a fact we cannot deny. We have stagnated,” said Dr Odhiambo Oundo, a lecturer at the University of Nairobi’s Department of Real Estate and Construction Management.
“After the growth and expansion, the sector experienced in the past, it was inevitable that there would be a slowdown. The sector has reached a plateau. It has been slowing down since 2015.”
Dr Oundo, who is also a consultant at Roack Consult Ltd, added that the changing political environment ahead of next year’s general election, high interest rates and commercial banks’ reluctance to accumulate high proportions of non-performing loans have left the sector short of new investments.
Analysts at Cytonn Investments Ltd said: “Investors should be biased towards short-term fixed income instruments due to the uncertainty of rates in the current environment,” said Cytonn Investments.
Last week, the Central Bank of Kenya maintained its bench mark lending rate to commercial banks at 10.5 per cent and revised the uniform base lending rate — the Kenya Banks Reference Rate (KBRR) — to 8.9 per cent, from 9.87 per cent, to control the high interest rate regime.
“We will continue to pressure banks to lower their interest rates,” said Dr Patrick Njoroge, CBK Governor.
Kenya’s parliament has passed the Banking Amendment Bill, which, if signed into law by President Uhuru Kenyatta, will tame interest rates. Banking rates cap at 14.5 per cent.
According to James Karanja, executive director of HF Development and Investments Ltd, a subsidiary of HF Group, investors have shied away from the property market because of the impending elections while the demand for houses has shrunk because of tight liquidity occasioned by skewed distribution of cash in the banking industry.
Most of the cash in the banking system is being held by big banks, which are not specialised in lending to the real estate sector.
“Most of the liquidity is sitting with Tier 1 banks, which are not specialised in lending to the real estate sector,” said Mr Karanja. “What you invest now will only be available in the market after the elections next year,” he added. Rising supply and falling demand has resulted in a decline in prime residential rents in the first three months of the year, according to the Knight Frank Prime Global Rental Index, which tracks the performance of luxury residential rents across 17 key world cities.
According to the index, prime rents in Nairobi fell by 2.9 per cent.
“Rents have trended lower as we are seeing weakened demand from this segment of the market due to multinational firms downsizing as a result of adverse economic circumstances driven by low commodity prices,” said Charles Macharia, a senior research analyst at Knight Frank Kenya.
According to analysts at Standard Investment Bank, the Nairobi Securities Exchange (NSE) 20-Share index has fallen 14 per cent from January to July 2016.
The returns on the stock market as measured by the Nairobi All Share Index (NASI) fell to 10.9 per cent last year from 19.2 per cent in 2014.
“I think investors are not putting a lot of money in bonds and equity this year but instead they are putting money in Treasury bills, going by the oversubscription we have witnessed this year,” said Francis Mwangi, head of research at Standard Investment Bank (SIB).
According to Daniel Kuyoh, a senior investment analyst at Alpha Africa, asset managers are shifting money from the equity market to the bond market, a trend that is likely to persist until after the general election scheduled for August 2017.
“We are seeing a lot more investors moving towards the fixed income market and we expect this trend to persist until the elections are over. There is a bid of subdued interest in the stock market which has been on the downward trend since May 2015,” said Kuyoh.
Last year, activities in the bond market declined following the rise in interest rates causing a 39.1 per cent drop in bond turnover to Ksh 310 billion ($3 billion) from Ksh500 billion ($4.84 billion) in 2014.