The real estate sector has recorded its slowest quarterly growth in four years, giving weight to recent property market reports that have signalled a slump in demand despite increased supply of new housing units.
Fresh Kenya National Bureau of Statistics (KNBS) data, covering the third quarter ended September 2018, shows real estate recorded a growth of 5.8 per cent, the slowest since the 5.4 per cent registered in the fourth quarter of 2014.
The growth rate is way lower than the four-year peak of 9.6 per cent recorded in the first quarter of 2016.
Market analysts link the sharp dip to uncertainties in approval laws, difficulty in accessing bank loans and a general slowdown in spending power among buyers.
Cytonn Investments senior manager for regional markets Johnson Denge said in an interview Wednesday that the market is experiencing subdued demand in the traditional drivers of real estate.
“Demand is both constrained by oversupply in some segments and also due to would-be-buyers experiencing very limited access to credit,” said Mr Denge.
“We have seen oversupply in areas such as office space, upper-limit residentials in select markets and also in retail space.
“Demand has slowed down and developers will have to look for new pockets of value, especially in the lower end of the market.”
The KNBS numbers are in synch with recent reports by the Kenya Bankers Association (KBA) and Hass Consult that signalled slowed pace of increase in prices of new houses.
HassConsult’s report covering three months to end of September showed that house prices rose by 1.1 per cent.
KBA’s report showed a 1.35 per cent rise, marking a second consecutive slowed growth since the first quarter.
“The situation reflects subdued demand on the back of continued investments in the housing market, which remained skewed in favour of the middle and high-income bracket,” Jared Osoro, the director of research and policy at KBA, said.
This subdued demand amid slowing growth in prices has made it difficult for property developers to repay bank loans.
The Central Bank of Kenya’s (CBK’s) quarterly report shows that real estate developers had the highest growth in loan defaults in the three months ended June 2018, underscoring the struggles of developers in finding buyers for houses amid declining returns.
Non-performing loans (NPLs) in the sector rose by Sh6.1 billion, or 15.8 per cent in the April-June period to Sh44.4 billion compared to the previous quarter.
This growth in loan defaults outpaced that of manufacturers (11.7 per cent) and traders (7.3 per cent).
“The real estate sector registered the highest increase in NPLs by Sh6.1 billion (15.8 per cent) due to slow uptake of housing units,” the CBK said.
The reduced demand in new houses has impacted on the building and construction sector where cement consumption for 10 months to October 2018 dropped by 6.41 per cent to 4.129 metric tonnes compared to a similar period in 2017.
This also led to 9.5 per cent decline in cement production during the period as the number of new building plans being approved declined.
In Nairobi alone, the value of building approvals by the City Hall in the 10 months to October 2018 fell by 21.5 per cent to Sh169.2 billion, pointing to tied-up investment value for investors.
Firms selling cement have also been on the receiving end, with ARM Cement sinking into administration and Bamburi Cement warning investors of a looming dip in profit to a 10-year low.
Banks have shied away from lending to real estate developers, with credit as at end of September 2018 growing by just 1.7 per cent.
This is significantly lower compared to a growth rate of 9.2 per cent in the quarter to September 2017.
According to Mr Denge, the continued credit crunch in a sector that relies heavily on credit puts pressure on developers to return the sector to last decade’s performance when returns had outpaced that from equities and government paper.
“Credit crunch bites both developers and buyers. Real estate being a capital-intensive sector means developers need credit to construct and also would-be buyers need to access credit to acquire the property,” he said.
Mr Denge said the market was likely to continue experiencing stagnated prices with some areas witnessing correction in pricing.
“We are going to see a lot of stagnated pricing but not a drop since the underlying costs still remain.
“Even auctioneers who are not able to dispose of distressed property will still continue to protect reserve prices,” he said.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.