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Real estate in Kenya: 2018 revelations and 2019 predictions

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By DELFHIN MUGO
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In 2017, the highly divisive political campaigns, a tension-packed general election, the shocking annulment of the presidential election and thereafter a repeat election that almost half the country boycotted, all threatened to send the country’s economy to hell in a handbasket.

The beginning of 2018 was a turbulent one as well. But enter the famous ‘Handshake’ and many economic sectors, including real estate breathed a huge sigh of relief, and are seemingly performing better.

According to Kenya Retail Sector Report by real estate and investment management firm Cytonn Investments, the real estate sector performed better in 2018 compared to 2017.

The report says that the metrics under consideration, namely retail space supply, retail market performance, retail space demand and market sentiments all returned a positive outlook apart from retail space supply which was neutral. The conclusion was also inspired by the higher yields at 8.6 per cent from 8.3 per cent in 2017, which is supported by the improved macroeconomic environment.

“The handshake was one of the defining moments as it brought a level of political stability into the country. Following that, business has picked up and investors came back to the market,” says senior investment analyst at Cytonn Mr Caleb Mugendi. He is upbeat that 2019 is going to be a bullish year.

On his part, Mr Francis Kihanya, CEO of real estate firm Manyatta Capital says that at the beginning of 2018, as was the case towards the end of 2017, many investors adopted a wait-and-see attitude and thus withheld their money. As a result, there was little activity on the property scene as many construction projects were put on hold and people didn’t buy a lot of real estate because of the uncertainties that came with the political heat in the country.

“2018 started from a point of unpredictability, coming from a long winded electioneering period that had strained out the real estate sector big time. The big sigh of relief came in March when that Handshake happened,” says Mr Kihanya.

Today, we take a look at some of the issues in the property scene that defined 2018 and are worth keeping tabs on as 2019 unfolds.

In 2017, during the Jamhuri Day celebrations, President Uhuru Kenyatta announced the “Big Four” pillars of his second and last term in office, among them affordable housing, consequently setting the stage for what is to become the country’s largest mass housing project since independence. In 2018, the government’s plan to construct 500,000 low cost houses in the next four years has been a major talking point in the property sector.

Commenting on the government’s plan, Mr Mugendi says it is a good initiative because it will cater for those at the low-end of the market who are often ignored by private developers, adding that it has the potential to attract lots of investors into the country looking for partnerships with the government.

“Government foresees this as one of the sectors that will drive growth and take Kenya’s economy towards Vision 2030,” says Mr Mugendi.

Due to the influx of new units in the near future, Mr Mugendi foresees a situation whereby the low cost housing market is going to be disrupted in a good way, such that prices of homes will be brought within the reach of many low income Kenyans.

“Going forward, if this initiative succeeds, land prices, a factor that has been the greatest impediment to housing will be checked, enabling Kenyans, especially those in urban centres to own a roof over their heads,” notes Mr Mugendi.

Land prices to go down even further

Yet another advantage of the government’s direct involvement in provision of social housing, Mr Mugendi says is the ability of such a move to bring down the cost of land, as a result of government releasing parcels of land it has been sitting on for ages.
“We have actually seen the prices of land come down in 2018. We expect that trend to continue in the 2019” offers Mr Mugendi.

Reduction in State Bureaucracy

While addressing stakeholders in the construction industry during the inaugural Construction Industry Awards (COINA) 2018 at Carnivore Restaurant in August this year, Mr Charles Hinga, the Housing PS, intimated that at least 35 legislations, some on procurement, were set to be repealed in a move by the government to put on course the plan to realise the affordable housing dream.

KBA CEO Habil Olaka during the Catalyst Awards 2017 by KBA at the Hilton Hotel on 6, 2018.

KBA CEO Habil Olaka during the Catalyst Awards 2017 by KBA at the Hilton Hotel on 6, 2018. PHOTO| FILE| NATION MEDIA GROUP

Consequently, during this year’s Jamhuri Day celebrations, the President, while outlining the progress for the ‘Big Four’ agenda, gave cutting down State bureaucracy by establishing appropriate laws and policies that would provide the platform to transform the housing sector, done in the past 12 months as one of the progress made.

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Still, experts in the real estate sector feels more needs to be done in terms of streamlining government policies in the housing sector in order to fast- track the agenda.

Kenya capped commercial lending rates in September 2016 at 4 percentage points above the central bank’s benchmark rate, which now stands at 9.0 per cent, in a bid to limit the cost of borrowing for businesses and individuals.

Many in the industry were upbeat that the interest rate cap would finally be reversed, especially after the Central Bank Governor, Dr Patrick Njoroge, in September 2017 said the interest rate cap on loans would soon be reversed, and that banks would be free to price their loans.

That did not happen in 2018, much to the disappointment of many.

“Real estate is capital intensive and developers need cheap and accessible credit to be able to make meaningful investment in the sector,” says Mr Kihanya, who has been in the business for many years.

Most Kenyans have not been getting cheap credit as banks have adopted a stricter vetting process. On the other hand, Kenyan parliament has rejected all attempts by CBK and Treasury to have the law repealed, creating a cal-du-sac situation.

The Kenya Bankers Association (KBA), commercial banks’ umbrella body, through the CEO Dr Habil Olaka told DN2 that their position that interest rate cap is not the way to go has not changed.

“The segments (small and medium enterprises and households) where credit was expected to flow into are not getting the right quantity of credit. Therefore, economic activities in those sectors are serious hampered. This means economic growth is not happening at full potential,” said Dr Olaka.

Statistics from Kenya National Bureau of Statistics (KNBS) seems to make the case for Dr Olaka. The data shows that in one year to December 2017, credit to the private sector only grew by 1.6 per cent, much slower than the previous year. Consequently, Central Bank of Kenya (CBK) data shows that in the 12-months to March 2017, credit to the private sector grew by 3.3 per cent, far below the preferred 12 to 15 per cent.

But it is not everyone who is buying these findings, and the accompanying arguments. For Mr Kihanya, two years is too little time to draw conclusions on the effectiveness or lack thereof of the interest rate cap law.

“Real estate is a cycle that takes five to eight years. So any bad decision made that affects the sector now, we are likely to see results earliest 2023,” offers Mr Kihanya. He adds the Presidents refusal to pander to banks as regards interest caps is “probably his biggest legacy.”

“The government needs to go full circle — stop taking from banks, so they can start hawking the money to real estate and other sectors,” says Mr Kihanya.

He believes commercial banks, CBK and Treasury are working in cohorts to frustrate the law.

“There is no way low interest rate can attract little interest from borrowers,” says Mr Kihanya, responding to a report from CBK indicating a slowdown in the country’s credit sector.

In the era of interest rate cap, most financial institutions have opted to play it safe by putting their money on government securities, said to be risk-free.

“My hope for 2019 is that the government will reduce its appetite for domestic borrowing. This will leave banks with no choice but to turn to individual borrowers,” offers Mr Kihanya.

There’s no telling whether the rate cap law will stand the test of time as members of parliament, the originator of rate caps, have stuck to their guns, while bankers are unrelenting and will most likely pick up the debate next year. Borrowers on the other hand, including those in real estate, want cheap and accessible credit.

It will therefore be interesting to keep watch on how things play out in 2019.

Out of the government’s desire to raise money to fund the ‘Big Four’ agenda, various tax measures were adopted in 2018 through the Finance Act, 2018. Notably, some of them touch on very basic commodities, thus leaving ordinary Kenyans staring at tough times ahead.

For instance, the increase in fuel prices means a ripple effect across all sectors of the economy, including agriculture, manufacturing, transport, tourism, building and construction, energy and healthcare.

“The fuel levy for instance affects the whole economy in terms of inflation and the fact that you will have to pay more for basic goods.

It also means that people have less disposable income, bearing in mind that people need money to invest in property,” says Mr Mugendi.

So, should the government rethink its tax policies, especially after a court temporarily stopped the government’s plan to impose a 1.5 per cent housing development levy, in 2019? Only time will tell.



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Public officers above 58 years and with pre-existing conditions told to work from home: The Standard

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Head of Public Service Joseph Kinyua. [File, Standard]
In a document from Head of Public Service, Joseph Kinyua new measure have been outlined to curb the bulging spread of covid-19. Public officers with underlying health conditions and those who are over 58 years -a group that experts have classified as most vulnerable to the virus will be required to execute their duties from home.

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However, the new rule excluded personnel in the security sector and other critical and essential services.
“All State and public officers with pre-existing medical conditions and/or aged 58 years and above serving in CSG5 (job group ‘S’) and below or their equivalents should forthwith work from home,” read the document,” read the document.
To ensure that those working from home deliver, the Public Service directs that there be clear assignments and targets tasked for the period designated and a clear reporting line to monitor and review work done.
SEE ALSO: Thinking inside the cardboard box for post-lockdown work stations
Others measures outlined in the document include the provision of personal protective equipment to staff, provision of sanitizers and access to washing facilities fitted with soap and water, temperature checks for all staff and clients entering public offices regular fumigation of office premises and vehicles and minimizing of visitors except by prior appointments.
Officers who contract the virus and come back to work after quarantine or isolation period will be required to follow specific directives such as obtaining clearance from the isolation facility certified by the designated persons indicating that the public officer is free and safe from Covid-19. The officer will also be required to stay away from duty station for a period of seven days after the date of medical certification.
“The period a public officer spends in quarantine or isolation due to Covid-19, shall be treated as sick leave and shall be subject to the Provisions of the Human Resource Policy and procedures Manual for the Public Service(May,2016),” read the document.
The service has also made discrimination and stigmatization an offence and has guaranteed those affected with the virus to receive adequate access to mental health and psychosocial supported offered by the government.
The new directives targeting the Public Services come at a time when Kenyans have increasingly shown lack of strict observance of the issued guidelines even as the number of positive Covid-19 cases skyrocket to 13,771 and leaving 238 dead as of today.
SEE ALSO: Working from home could be blessing in disguise for persons with disabilities
Principal Secretaries/ Accounting Officers will be personally responsible for effective enforcement and compliance of the current guidelines and any future directives issued to mitigate the spread of Covid-19.

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Uhuru convenes summit to review rising Covid-19 cases: The Standard

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President Uhuru Kenyatta (pictured) will on Friday, July 24, meet governors following the ballooning Covid-19 infections in recent days.
The session will among other things review the efficacy of the containment measures in place and review the impact of the phased easing of the restrictions, State House said in a statement.
This story is being updated.
SEE ALSO: Sakaja resigns from Covid-19 Senate committee, in court tomorrow

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Drastic life changes affecting mental health

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Kenya has been ranked 6th among African countries with the highest cases of depression, this has triggered anxiety by the World Health Organization (WHO), with 1.9 million people suffering from a form of mental conditions such as depression, substance abuse.

KBC Radio_KICD Timetable

Globally, one in four people is affected by mental or neurological disorders at some point in their lives, this is according to the WHO.

Currently, around 450 million people suffer from such conditions, placing mental disorders among the leading causes of ill-health and disability worldwide.

The pandemic has also been known to cause significant distress, mostly affecting the state of one’s mental well-being.

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With the spread of the COVID-19 pandemic attributed to the novel Coronavirus disease, millions have been affected globally with over 14 million infections and half a million deaths as to date. This has brought about uncertainty coupled with difficult situations, including job loss and the risk of contracting the deadly virus.

In Kenya the first Coronavirus case was reported in Nairobi by the Ministry of Health on the 12th March 2020.  It was not until the government put in place precautionary measures including a curfew and lockdown (the latter having being lifted) due to an increase in the number of infections that people began feeling its effect both economically and socially.

A study by Dr. Habil Otanga,  a Lecturer at the University of Nairobi, Department of Psychology says  that such measures can in turn lead to surge in mental related illnesses including depression, feelings of confusion, anger and fear, and even substance abuse. It also brings with it a sense of boredom, loneliness, anger, isolation and frustration. In the post-quarantine/isolation period, loss of employment due to the depressed economy and the stigma around the disease are also likely to lead to mental health problems.

The Kenya National Bureau of Statistics (KNBS) states that at least 300,000 Kenyans have lost their jobs due to the Coronavirus pandemic between the period of January and March this year.

KNBC noted that the number of employed Kenyans plunged to 17.8 million as of March from 18.1 million people as compared to last year in December. The Report states that the unemployment rate in Kenya stands at 13.7 per cent as of March this year while it stood 12.4 per cent in December 2019.

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Mama T (not her real name) is among millions of Kenyans who have been affected by containment measures put in place to curb the spread of the virus, either by losing their source of income or having to work under tough guidelines put in place by the MOH.

As young mother and an event organizer, she has found it hard to explain to her children why they cannot go to school or socialize freely with their peers as before.

“Sometimes it gets difficult as they do not understand what is happening due to their age, this at times becomes hard on me as they often think I am punishing them,”

Her contract was put on hold as no event or public gatherings can take place due to the pandemic. This has brought other challenges along with it, as she has to find means of fending for her family expenditures that including rent and food.

“I often wake up in the middle of the night with worries about my next move as the pandemic does not exhibit any signs of easing up,” she says. She adds that she has been forced to sort for manual jobs to keep her family afloat.

Ms. Mary Wahome, a Counseling Psychologist and Programs Director at ‘The Reason to Hope,’ in Karen, Nairobi says that such kind of drastic life changes have an adverse effect on one’s mental status including their family members and if not addressed early can lead to depression among other issues.

“We have had cases of people indulging in substance abuse to deal with the uncertainty and stress brought about by the pandemic, this in turn leads to dependence and also domestic abuse,”

Sam Njoroge , a waiter at a local hotel in Kiambu, has found himself indulging in substance abuse due to challenges he is facing after the hotel he was working in was closed down as it has not yet met the standards required by the MOH to open.

“My day starts at 6am where I go to a local pub, here I can get a drink for as little as Sh30, It makes me suppress the frustration I feel.” he says.

Sam is among the many who have found themselves in the same predicament and resulted to substance abuse finding ways to beat strict measures put in place by the government on the sale of alcohol so as to cope.

Mary says, situations like Sam’s are dangerous and if not addressed early can lead to serious complications, including addiction and dependency, violent behavior and also early death due to health complications.

She has, however, lauded the government for encouraging mental wellness and also launching the Psychological First Aid (PFA) guide in the wake of the virus putting emphasis on the three action principal of look, listen and link. “When we follow this it will be easy to identify an individual in distress and also offer assistance”.

Mary has urged anyone feeling the weight of the virus taking a toll on them not to hesitate but look for someone to talk to.

“You should not only seek help from a specialist but also talk to a friend, let them know what you are undergoing and how you feel, this will help ease their emotional stress and also find ways of dealing with the situation they are facing,” She added

Mary continued to stress on the need to perform frequent body exercises as a form of stress relief, reading and also taking advantage of this unfortunate COVID-19 period to engage in hobbies and talent development.

“Let people take this as an opportunity to kip fit, get in touch with one’s inner self and  also engage in   reading that would  help expand their knowledge.

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