The rise of micro-grids have over the last few years, roused the possibility of attaining full global electrification. In Africa, particularly the sub-Saharan, micro grid technologies continue to hold promise because of the difficulty of building a centralized generation and delivery systems. In Kenya, only 56 percent of the total population is connected to the national grid. However, the World Bank reports that electrification in rural areas can be as low as 5 percent with about 87 percent of the population dependent on kerosene to light homes and businesses which is thoroughly expensive, especially now, when Kenyans have to pay for more for fuel products. With micro-grids’ cost efficiencies further promise high acceptance rates. The adoption of micro-grids in Africa is tantamount to this region skipping the traditional wireline telephone systems and going into using mobile cellular devices.

According to Forbes, there is a potential to serve 100 million people in Africa cost effectively. This translates to about 400 people per square kilometer in rural areas to achieve cost efficiency at all levels of the value chain. The challenge, however, lies in creating innovative business models for mini-grid companies. Part of the problem is that the cost of operations is high, and sometimes, households do not consume enough power to pay for these costs.

In urban centers and fast developing areas, however, micro-grids may just be as useful, and easy to reach full efficiency with the advantage of a population that easily consumes a lot of power.  In Kenya, we are grappling with the basics across the entire electricity supply chain. The extent of power outages, which average a downtime of 53 percent, has been so high that today, a large proportion of businesses and households cannot do without backup generators to supplement the main grid power connectivity. This, energy companies can use as an incentive to provide mini-grid services.

Although the concept may be new to Kenya, there is a trend all over the world for power to be decentralized from the main grid, with the biggest drive being decarburization. Increasingly, micro grids are being considered by real estate developers to boost energy credentials.

Commercial Appeal

The idea of producing one’s own power and doing it more cleanly is attractive to a lot of businesses and institutions today. Micro grids differ from backup systems in their ability to provide uninterrupted power. Also, because micro grids are often developed with renewable energy sources such as solar or fuel cells, they can offer greater flexibility, energy efficiency, and cost savings compared with those offered by the traditional utility grid or backup generators, which typically are powered by diesel fuel. With access to renewable energy and more of a corporate focus, micro grids could become a key selling point for landlords trying to maximize the rental value of their property as green buildings tie well with today’s environmentally conscious world and companies’ corporate social responsibility initiatives. When developed, we could see a scenario whereby landlords lease electricity supply alongside the building enabling tenants to get energy at a price that is fixed for over 5 years.

For companies with multiple offices, the stability and security offered by long-term, fixed electricity prices could be a real aid to managing their businesses better. With small installments such as the development of carports with solar panels in car parks, there is an assured supply of green energy, and price certainty.

Energy analysts argue that when it comes to micro grids, the type of property – be it offices, shops, or residential- is not as relevant as the amount of energy being consumed. A typical office does not consume a massive amount of electricity so they couldn’t set up an individual power supply agreement. However, by teaming up with other offices in the area, it creates a sufficient demand to tender to an electricity generator.

Community led-power generation

Community-led micro grids are a way for neighborhoods, towns, and cities to meet their energy needs locally. Increasingly, community micro grids are being eyed as an option even in areas where a larger grid already exists, mainly as a way to increase local energy independence and resilience. Community micro grids are small-scale versions of the grid as we know it, except that they are, ideally smarter and put more focus on individuals as active participants instead of as passive consumers.

In effect, a community micro grid combines the advantages and resilience of the current grid system with the flexibility individual-centered nature of small-scale, distributed renewable generation. These may be built for financial reasons such as high electricity prices on the main grid.

With the rise of solar panels on housing, residential communities stand to benefit through new concepts such as peer-to-peer energy trading. Through the model, one would be able to sell power for profit via a block chain-powered platform. Such a trial by Enova Energy is underway in Australia where the company has set up a micro grid that rewards local solar users for pushing power back into it when energy from solar panels is not used. The company also aims to separate itself from the grid entirely and fully self-source its energy, thereby keeping the money within the region.

Micro grids are revolutionizing energy provision across nations. Whether they are supporting developing countries looking to build up electricity infrastructure or real estate developments looking to offer predictable utility bills, micro grids could have a big impact on the way people and businesses access power in the near future. With a number of lessons from the developed world, Kenya stands to gain a lot from micro grids, and the worldwide fall in prices of renewable energy materials.

B) WEEKLY HIGHLIGHTS

I. Two Rivers eye smart city status with 1000 new residences

Two Rivers plans to build 10,000 residences in the second phase of the development that will see it transform into a smart city. After the

completion of its first phase, with 67000 square meters of retail space, the development has now hired Ms Inutu Zaloumis-Kalumba, a Zambian national, as its first mayor to drive the next phase of the project. Her primary role will be to bring on board new partners to actualize the vision of the project.

The project, which sits on 106 acres, has already secured two key deals of third-party sales in city lodge, a three-star hotel that is now operational, and Victoria Commercial Bank to be completed by the end of the year. The developer plans to sell 95 percent of the total developable bulk to third-party developers. The third party developers are also expected to build within the master plan and development guidelines. With the mall at 76 percent let with a 68 percent trading position, it is targeting a resident population of at least 10,000 people living and working at Two Rivers and its environment.

II. Global rating agency (GCR) downgrades Cytonn Investments as debt to equity ratio hits 86 percent

The Global Credit Rating has downgraded the rating for Cytonn Investments citing the company’s curtailed access to commercial loans and facilities as well as its model of using short-term debt from mezzanine investors to fund long-term projects. The agency also cites that Cytonn’s short track record and untested ability to execute multiple real estate projects are part of the reasons for downgrading. Interestingly, the group’s receivables grew much faster than revenue. The overall aggressive rollout of projects and dysfunctional appetite for debt could deteriorate the situation.

The agency notes that Cytonn reflects negative earnings-based gearing, on the back of operating losses, and as such, a trajectory of robust profitability will have to be achieved to support sound debt to EBITDA and debt serviceability ratios. GCR also warns that Cytonn could default its debt obligations mainly because of delays in project execution and unit uptake or unmitigated regulatory, construction, and market risks which are impacting the company’s cash management solution named ‘Cytonn High Yield’ Solution, which Cytonn claims offer investors higher yields than the market average.

III. Hass Consult launches first Sensory botanical gardens in Kenya

Hass Consult Real Estate has launched its largest development yet, Enaki, Kenya’s first sensory botanical garden set to sit on 22 acres of land opposite Nyari Estate in Nairobi.

Enaki will be made up of a life-cycle housing nestled into its middle zone. It will also feature custom-made homes for all types of buyers and families – small to large as well as an assisted living facility for the elderly.

Phase one of the project whose target market is the upper- and middle-income people is set to break ground in quarter 2 of 2019 and expected to be complete in mid-2021.

Phase one and two of the project will be made up of a total of 450 units, a move that the company noted might be subject to changes depending on the market at the time when construction will be going on. The pedestrianized experience oriented township is complete with golf carts for residents and visitors, boutique-lined high streets, a hotel, amphitheater, and a floating restaurant.

IV. Superior homes to build a retirement facility in Athi River

Senior citizens aged 60 years and over are set to benefit from custom-designed retirement homes following the completion of Kenya’s first model of assisted living homes by Superior Homes.

Sitting on a 5-acre land within Green Park Estate in Athi River, the Sh500 million Fadhili Care Homes complex features a total of 41 self-contained one and two bedroom cottages customized to cater to the needs of older persons through modern easy-to-access mobility aids and quality medical services.

According to the homes Head Nurse Dorcas Bett, Fadhili Care’s role includes providing both home and health care services with access to qualified nurses on a 24-hour emergency call service, as well as a stand-by ambulance to support the elderly’s emergency medical needs.

V.  Institute of Surveyors of Kenya asked to go rogue against rogue land dealers

The Government has cautioned real estate developers against breaching professional ethics. Housing and Urban Development Cabinet Secretary James Macharia said professionals in the sector ought to be keen while executing their operations.

Speaking during a recent land and property sector conference organized by Institute of Surveyors of Kenya (ISK), in Nairobi, the cabinet secretary urged the professional body to take legal action against rogue land dealers citing the rising misuse of land, unscrupulous contractors, and building under high voltage power and sewer lines are the major concern.

VI. LaSalle launches a global real estate investment platform

A new global real estate investment platform has been launched by investment management firm LaSalle. LaSalle Global Solutions (LaSalle GPS) will be one of the largest indirect real estate investment platforms in the world with around $10 billion in assets under management. The announcement of the new platform follows LaSalle’s of its acquisition of the Real Estate Multi-Manager business of Aviva Investors.

The platform brings together the Aviva multi-manager indirect business, LaSalle’s existing European-based global indirect investment team, and its global strategic co-investment team based in Chicago. The new platform will offer a range of opportunities across private, public, debt and equity segments through investment in third-party and in-house funds, joint ventures, co-investments, and secondaries.

C) KENYA REAL ESTATE TRENDS

High production costs of paint products result in an increase in paint prices

Builders are contending with higher paint prices as local manufacturers seek to protect their margins in the wake of rising costs of essential products for most decorate formulations. Paint prices in Kenya, which have been edging higher since mid-last year, have further gone up by a significant margin following the recent introduction of eight percent value-added tax and Sh18 adulteration fee per liter of kerosene – a key raw material for paint and resin production.

The imposition of new levies has seen the retail price of kerosene rising from Sh84.95 to Sh108.84, piling pressure for paint manufacturers who are reeling under high input costs. Crown Paints Kenya has now raised the prices of its products by at least eight percent, with other manufacturers expected to take similar measures. According to the company’s management, production costs have risen by 10 percent. The price increase has affected roof paints, gloss paints, varnishes and thinner, which cleans up surfaces after using oil-based paints. The price increases are set to pile pressure on builders who are struggling with rising construction costs considering that painting accounts for a substantial portion of a project’s total budget.

Seamless property purchase procedures and perks drive Kenyan buyers to Dubai

Wealthy Kenyans are increasingly acquiring highly coveted properties in the heart of Dubai to house family members or business partners who often tour the United Arab Emirates. This has prompted several Dubai property developers to arrange roadshows and meet people trips in Nairobi as they seek to cut multi-million shilling deals with Kenyans eyeing property abroad. According to Dubai developers, Kenya is emerging as an important market for the UAE as more affluent families are buying apartments to facilitate residence for their members or to house business partners who often visit Dubai. A majority of Kenyans buying property in Dubai are interested in holiday homes or homes that can be used as investments, leased out to other Kenyan families visiting Dubai for holiday.

The seamless process in the acquisition, however, is what makes such purchases attractive. Dubai laws facilitate a tax-free purchase of property and automatic issuance of two-year residency visa for buyers and their family members. The Visa is automatically renewable every two years and the process features an actively involved Dubai government.

Likewise, payments are made to the Dubai Land Office, where a buyer is subsequently issued with a title deed on completion of payment.

Shortage of warehousing facilities in the country attracts international developers to the sub-property market

A scarcity of quality storage space has continuously driven up the prices of modern warehouses in Nairobi as retailers compete for the few available facilities, thus generating strong returns for commercial property investors. Due to numerous high volume projects under construction in the city, speculative development has remained low. As a result, more master planned projects are in the pipeline. Top in the industrial park development includes real estate private equity firm Actis and South Africa’s Improvon Group are due to start construction of a Sh11 billion industrial park.

The companies bought off 103 acres on the Eastern bypass where they will jointly build the Nairobi Gate Industrial Park over the next five years. The development will offer industrial and logistical support for local and international companies, with quick access to key logistics and transport hubs such as Jomo Kenyatta International Airport and the Embakasi-based Inland Container Depot. Improvon and Actis hope the construction of the first two warehouses will be completed in July next year, and that they will have completed the entire project in five years. According to Improvon’s chief executive, Nairobi Gate will target light industries.

Grit, is another key player in the local real estate market. The London listed company owns the Mlolongo-based Imperial Warehouse, which it acquired in November 2016 from Imperial Health Sciences at a cost of Sh2.2 billion. The company also owns a 20,200 square meter vacant plot of land adjacent to the Imperial Warehouse valued at Sh300 million. Grit also holds a 50 percent stake in the Naivasha-based Buffalo Mall.

As demand for industrial space in Kenya grows at 5.1 percent annually, international logistics companies launching operations in the country will be competing for the available spaces.

D) GLOBAL REAL ESTATE TRENDS

Local economy expected to drive home prices in Manchester to 60 percent rise in the next decade

Home price growth in Manchester, England, has outperformed the U.K. average for five out of the last six years, according to a recent study from real estate firm Cushman & Wakefield.

The average home in the northern city appreciated 9% in the year through July, a significant rise compared to the price declines recorded in London. According to Cushman & Wakefield, the greater Manchester is U.K.’s largest and fastest-growing economy outside of London. The city is home to a number of FTSE 100 companies and has an economy of £300 billion (US$389 billion). Businesses with core operations in Manchester include Amazon, the Royal Bank of Scotland, in addition to media giants like the BBC and ITV.

The report concludes that the local economy has fueled Manchester’s housing market, which could be a boon to developers and property investors over the next decade. The brokerage forecasts home prices in Manchester will rise 57% through 2028, the highest rate of growth in that time period of any city in the U.K.

Property market slack in Canada drives up marketing in the Chinese mainland

Canadian developers are looking to Chinese buyers to pick up the property market slack. According to reports, 40% of Canadian developers plan on raising overseas marketing budgets. Specifically, they’re looking at scaling efforts in China and Singapore. Nearly half will keep their current budgets, and only 13% will lower. This comes as foreign buyer taxes have hit both Toronto, Vancouver, and Montreal.

The shift to ramping up pre-sale construction marketing overseas isn’t surprising as new home absorption in Toronto has fallen below the average buyer’s market. Developers can either sell overseas to massify, lower prices, or cancel projects. However, canceling of projects is difficult as rates rise, making sitting on land less profitable. The Chinese market is an important funding source for nearly all North American developers. Real estate companies report that 1 in 10 units were sold to Chinese buyers in the region for projects regardless of size, city, or developer. So high has been the demand that 13% of Canadian developers have dedMandarin-speaking staff, with the rest outsourcing.

E) THIS WEEK PRICE ANALYSIS – KILIMANI, NAIROBI

This week’s focus is on the land, sale, and rental prices for 2-4bedroomed apartments in Nairobi’s Kilimani. The statistics below were acquired after conducting an analysis on the asking prices on online property listings in Nairobi.

Sales Price –Apartments and houses

Rental Prices – Apart & Houses

Land Prices (Commercial/ Residential)

F) KENYA INTEREST RATE WATCH

Treasury bills were undersubscribed for the second week at 93.81% from 83 percent last week. The 91 –Day, 182-Day and 364 –Day bills yielded 7.347%, 8.320%, and 9.5212% rates respectively.

The 91-Day bill performed at 182.13% recording the highest subscription, followed by the 364-Day bill at 127.88 percent.

G) KENYA EQUITY MARKET WATCH

The total shares traded during the week decreased by 9.7 percent to 174 million shares this week. The NASI increased by 0.52 percent while the NSE -20 index decreased by the same volume. The NSE -25 index, on the other hand, increased by 0.034 percent against last week’s performance.

Market capitalization and equity turnover increased by 0.6 and 9.4 percent respectively.

H) KENYA CAPITAL MARKETS ANALYSIS SUMMARY

Uchumi Supermarkets led the gainers’ chart after a dismal performance last week, closing at 8.31 percent gain. Other top gainers of the week included Kenya Airways and Umeme Limited closing at 2.66 and 2.11 percent gain.

Among the top losers of the week were Liberty Kenya Holdings, and Kenya Power & Lighting Company closing at 9.02 and 8.86 percent loss respectively

I) CURRENCY HIGHLIGHTS

Last week, the shilling weakened against the US Dollar and the Euro at 1.328, and 0.27 percent and strengthened against the Sterling pound at 1.072 percent.

In East Africa, the shilling also strengthened against the Ugandan and Tanzanian shilling at 1.835 and 0.921 percent.

This report is written by Buildafrique Consulting Group; a multi-disciplinary consulting group of four (4) specialized companies, that offers End-to-End Real Estate and Development Solutions to Investors, Developers, and Prospective Home Owners in Kenya and the Regions.

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