Property owners in Kenya in dilemma as demand tumbles
Wednesday July 28 2021
Kenya is likely to reform its land valuation following a decline in real investment caused by over-valuation and the Covid-induced financial crisis.
Speaking at the East Africa Property (EAPI) Summit 2021 recently (July 5-9), land economists and real estate professionals agreed that real estate in the region is unlikely to see a rise in demand.
“Real estate was slowing down even before the pandemic due to over-supply of office units in high end suburbs in Nairobi such as Kilimani and Westlands. Covid-19 just accelerated it,” said Ken Gichinga, the chief economist at Mentoria Economics.
“The industry has suffered from what I called information asymmetry where one piece of land depending on who you speak to can go for such and such amount to remarkable differences. This is one area real estate marketers are looking at,” said Mr Gichinga.
This in turn has exposed the real value of properties with some experts warning that the post-covid-19 period may see a need to re-evaluate the real estate sector with a view of reviewing its valuation. While accurate real estate valuations can help investors make better decisions when it comes to buying and selling properties, the current market variations in Kenya are unpredictable. An eighth in one area can retail for Ksh1.7 million ($15,455), and Ksh70 million (636,364) in another.
“Demand for commercial office space in all the three countries has been down in the past 12 months. In Kenya average office space varies between $10$-$11 per square metre per month,” said Moses Lutalo, managing director, Broll Uganda.
“The demand for office space in Uganda is between $15-$16, and in Tanzania is $14-$16 per square metre per month.”
“Rentals are still quite high. Demand has remained down in Kenya while in Uganda it has picked a bit. Warehousing space demand has remained flat as the surplus remains high in all the three countries,’’ said Mr Lutalo.
But Shevira Bissessor, the chief operating officer of Gateway Real Estate Africa is confident of the future despite the structural shifts in the sector, especially as international investors look for opportunities post-pandemic.
“The pandemic has resulted in much fewer speculative developments and a preference for multinationals to lease than hold assets on their own balance sheets,” said Mr Bissessor, adding that “at the same time online shopping has been accelerated with a surge in demand for data centres and warehousing.”
The outlook for the office sector is altogether more difficult to predict as it is influenced by such varied forces for change. The 2021 outlook for the office sector is difficult to predict and with jobs currently at risk, disposable income has reduced and ability to pay rent has been adversely affected.
“Covid-19 has introduced a new lifestyle. Many people are working from home. Others have introduced new business. The desire for people to move into their own homes has also accelerated the slow down in demand for houses,”said Mr Gichinga.
Other factors are slowing economies that have reduced uptake of financial products caused by uncertainty of the ability to pay.
Companies minimised borrowing and overheads in the first quarter of 2021 by downsizing or foregoing office space.
“There is a big need to make real estate a profession, introduce accreditation and even courses. What Covid-19 has put is a pause button.”
He decried the lack of professionalism in the sector saying it is one of the reasons why real estate is overvalued.
“We have never had an economic approach to valuation. When you talk about valuation, the big thing is supply and demand. We need to apply economic principles,” Mr Gichinga said.
“The use of technology will help bring order and harmony. Once we are done with Covid-19, there is a need to digitize and harmonise the sector,” said Mr Gichinga.
He singled out Kenya’s digitisation of the Land Registry as one that may lead to proper valuation of real estate property by bringing down or stabilising the cost of property.
Uganda and Rwanda are back to a lockdown and every time this happens, it has an effect on the real estate market.”