Waving bye to the landlord as you move on to settle in your own home is every Kenyan’s dream because as the good saying goes, east or west home is best. However, owning a home requires much more than wishful thinking. You need money, a good plan and great efforts. So far, so good but most recently, houses’ price in some of Kenya’s satellite towns have been prohibitively high for a section of aspiring homeowners. Consequently, most people’s march towards homeownership has either been stopped or significantly slowed by among others, the harsh COVID effect on real estate
Slow business, lay-offs, job losses, pay-cuts form the long list of reasons why property ownership for some has moved several years ahead. However, current trends in the real estate industry show that not everyone was grossly affected by global pandemic disruptions.
Those who are financially stable are still exploring property investment opportunities and defying every odd that has pushed the average income earner to the sidelines.
The most recent trends
During the last six months, the markets targeting the category of homes priced between 2 million and 9 million shillings have had slightly lower activity.
Interestingly, the middle-class market targeting houses going for between 10 – 20 million shillings has shown increased activity. This is most likely because the majority of prospective buyers in this market segment can access mortgage financing.
To ease the financial burden and create easy access to credit facilities, some companies have devised creative models that include financial institutions in their system. In part, this model entails purchasing a large piece of land and selling it to interested buyers in smaller portions at affordable prices.
What is the COVID effect on real estate?
Whichever angle you look at it, COVID-19 has had such a disruptive effect on the Kenyan economy since early this year. Here are some of the challenges the sector has had to endure;
- Building approvals have slowed down since public offices like City Hall were closed.
- Some of those who subscribed to the off-plan real estate on instalment payment terms are having a hard time.
- Labour force has reduced significantly, and most supply chains have been disrupted, resulting in extended development periods.
- Some developers have cut down on their construction activities to reserve their money because of the likely decline in market liquidity.
- Reduced collections since the Lands Registry had been closed. Mortgage buyers and banks became more cautious about releasing funding.
- Generally, funding to the real estate sector has reduced due to the high risks associated with the pandemic.
Real estate divisions such as the hospitality, retail, office and residential sectors have particularly suffered under the mandatory lockdown measures and the shrinking disposable income among the majority of Kenyans.
The hospitality sector
The widespread travel restrictions led to many hotels’ closure, including popular destinations like Fairmont Hotels and Sarova Hotels. This closures happened partly due to Kenya’s heavy reliance on international tourism.
Additionally, the stringent local regulations on public meetings, conferencing and exhibitions have also harmed the sector forming part of the massive closures.
The residential sector
Owing to the shrinking incomes most renters and homebuyers will continue to cut their spending capacity leading to a decline in the housing demand. This may push down the home prices and rental prices. Occupancy rates are likely to register flat growth due to restrictions on movement and individual contact.
The office sector
We expect to see a significant reduction in office occupancy as most organizations resort to turning virtual working into a permanent feature. The apparent disruption might see businesses close down and others scale down their operations. As a result, vacancy rates will go up.
Most foreign investors are hesitant to come in as they assess the situation to see improvements. This has, in a way, contributed to a decline in the demand for office space.
The retail sector
Giant retailers like Tuskys, Shoprite and Naivas have had to close some of their branches as one of the measures against the impacts of COVID-19. Tuskys and Shoprite have particularly taken a harsher beating.
Consequently, there has been steady gravitation towards e-commerce because most Kenyans are still avoiding crowded places in keeping with the social distancing regulations.
The vaccines to combat this pandemic are already here, thanks to the medical researchers who burned the midnight oil. In the meantime, though, the COVID effect on real estate shall continue taking their toll until the damages are reversed