At Week #13 of 2021, the following are factors that will shape the Kenya Real Estate and Development Market in the next one week, for your Investments Risks Management:
i.) New Covid-19 measures in Nairobi Metro and Nakuru County (Zone 1)
On Friday, 26th March 2021, the government reimposed Covid-19 restrictions after the country’s positivity rate this week jumped to 22 percent, a 20 percent increase since January 2021. The government banned movement in and out of Nairobi, Machakos, Kajiado, Kiambu and Nakuru counties, as well as public gatherings in these counties. Curfew hours were reduced from 10 pm to 8 pm, and all bars and eateries were closed till further notice.
As the directive is being enforced, the state is set to lose billions in revenue as economic activities are set to be derailed. The cessation and lockdown will further dent the operation of businesses, mainly the SMEs, which are expected to close down. The following are the other effects that this turn of events will have on the economy and the real estate market.
In the next few weeks, people in neighboring estates will likely be seen doing panic buying, and hence more hoarding and increase in food prices is likely to be experienced, leading to inflation. Footage in retail food stores is expected to rise in the short-term, while footage in other retail shops, for example, those selling clothes, electronics, and other non-essential items, is expected to reduce significantly as households hold to their liquid cash. The stalls are also expected to gain more popularity due to reduced wages and, in some cases, loss of jobs which is expected to result in many people opening businesses to get income or to sustain their living.
The closure of all eateries and bars in the Nairobi Metropolis is expected to affect hotels negatively, as most are expected to close down. Cessation of movement is also expected to reduce domestic tourism, leading to a reduced occupancy rate in hotel accommodation.
In Kenya, most firms that had reopened in January 2021 are looking to close, while some are expected to downsize following the directive. As such, the occupancy rate in Kenya offices will continue to plummet, affecting the office sector’s cash flow. The shut-downs are expected to affect businesses’ ability to pay rent, increasing office space lease breaks and hence the fall in rental income. As well, many firms in Nairobi are expected to shift to smaller fitted-out office spaces as flexible working patterns become the ‘new normal’. This is expected to force landlords to grant concessions on lease renewals which included cutting rents in a bid to attract and retain tenants.
Mass firings and businesses’ closure are expected to result in reduced income for property developers as lease breaks are expected to surge, affecting real estate loan repayment plans. More properties are expected to be auctioned, especially now that banks prepare to enforce loan recovery measures after the green light from the Central Bank of Kenya. Also, foreign investors who had prior plans to invest in the country’s real estate market are expected to shy away.
ii.) Restriction of domestic flights
The Kenya Civil Aviation Authority (KCAA) has directed the local airlines, with hubs in Nairobi, to ground flights from Monday noon after President Uhuru Kenyatta restricted movement in and out of the capital and four other counties, until further notice, to tame the Covid-19 spread. Budget airline Jambojet, a subsidiary of national carrier Kenya Airways, announced suspension of flights between Nairobi and Mombasa, Kisumu, Eldoret, Malindi and Diani from Monday, 29th March 2021.
Following that, cancellation of hotel bookings is expected to increase countrywide, and the number of local tourists is also expected to plummet. Countrywide, the Hotel occupancy rate is expected to reduce and hence the income.
As a risk management measures, Real Estate Investors are advised to enter into early negotiations with lenders for fair repayment terms to cushion the negative effects of the restriction measures on cash flows, for those whose properties are on collateral or financed by banks. Investment Opportunities are also expected to emerge on distressed properties, which also presents investment opportunities for speculative real estate investors who stand to gain once the markets recover after the lifting of the restriction measures.
Writer of the Article:
This Article is written by Buildafrique Consulting Group, Kenya multi-disciplinary consultancy, that offers END-TO-END DEVELOPMENT CONSULTANCY, REAL ESTATE, and PROJECT FINANCE solutions through specialized subsidiaries. Among our solutions includes:
- Feasibility Studies and Market Research.
- Project Finance and Capital Raising.
- Joint Venture & Finance Structuring
- Project Management.
- Investment Design Appraisal.
- Quantity Surveying
- Construction Cost Consultancy
- Physical Planning and Planning Permissions
- Environmental Management and Impact Assessment
- Real Estate Development and Structured Investment Solutions
- Property Valuation
- Marketing and Property Sales Agency
- Property Management and Facility Management