Over the past few years, ready-to-assemble (RTA) furniture has evolved in technology quality and features making it gain popularity in the furniture market for its low cost and high functionality compared to ready to use (RTU) furniture. The global (RTA) furniture market, which currently constitutes 5.3 percent of the global furniture market is expected to showcase significant growth surpassing USD 33 billion by 2024, at a rate of 5.6 percent. Global reports allude to the rising trend of work from home as one of the leading demand drivers for home furniture in the form of space saving modular units and prefabricated buildings. While Kenya is slowly adopting to prefab building, there is little to report on the adoption of RTA furniture market whose engagement in the Kenya Furniture industry is below 1 percent. In other parts of the Sub-Saharan, adoption rates are on the rise in Nigeria and South Africa. If one is in search of RTA furniture in Nairobi, they are likely to find it in a few high-end furniture stores. Today, we look at the opportunity in Kenya relative to the global market.
According to reports, Africa’s growth of RTA furniture can be attributed to rapid industrialization, improved logistics, and infrastructure. The growth in Africa will follow in the footsteps of the Asia Pacific region. The investment outlook is based on the current market dynamics which dictate a conducive environment for the growth of RTA market. An increasing middle-class level population, rise in household expenditure, change in lifestyle, growth in real estate sector, the rise in urbanization rate, increased preference for branded furniture, are some of the factors expected to increase the demand for RTA furniture market in the region during the forecast period.
As the region grows, key players in the furniture market including RTA furniture will enter partnerships with the e-commerce retail stores in order to strengthen their distribution network which will consequently drive market growth in the region. Sub-Saharan Africa, currently has a rich network of e-commerce retailers. In Kenya, online retail platforms are rising by the day coupled with a growing local engagement as international furniture manufacturers seek to expand their market share into the country. Similarly, there is a growing local entrepreneurship industry, albeit by the roadside in busy streets. Lynk Kenya is one of the first retail platforms to endorse RTA furniture produced locally and meeting international standards. Although there is an overwhelming reception, local manufacturers and dealers are currently few, resulting in an undersupply which has driven prices high.
One of the drivers for the rising demand in RTA furniture is their convenience in transportation, artistic and trendy feel, and ease of installation, all which make a worthy option for small and rented houses as these products are easy to dismantle. When there is a need to move house, customers can pack them into compressed flat packages, and use the instruction manual and simple tools enclosed with the furniture as provided by the vendor. Thanks to the Kenyan influencers’, do-it-yourself (DIY) home décor products have received a great deal of attention and consequently, demand that has seen several retailers venture into the segment. With a good social media strategy, the right product mix, and the existing demand, the RTA furniture segment holds abundant promise in the Kenyan market.
Vendors will need to consider product variety, which has moved from storage furniture to a wider range of products with segments such as RTA desks, tables, bookcases, chairs, and bedroom furniture. The styling of these furniture has also expanded in terms of design, and vendors will have to keep up with the trends.
Another aspect to consider is the evolving retail industry where comfort and experience are increasingly becoming important to customers because of their hectic lifestyles and work schedules. A lesson from large organized retail stores is how they will stock many brands and a variety of furniture products under one roof, providing more options to customers.
While there is an opportunity for income generation and a market to serve, it is important that prospective manufacturers and vendors consider all downsides associated with the venture. Such is the increased taxation of mid-density-fiberboard which is the main product in RTA furniture, and the current shortage of wood/timber in the country, which affects production. Consulting with an investment advisory firm is also useful in determining the best route to a finished, high-quality product.
B) WEEKLY HIGHLIGHTS
i. Members of Parliament give a solution to save Seefar Apartments
MPs want part of the Nairobi dam near Seefar apartments destroyed in order to save the impending demolitions of the buildings. The National Assembly Committee on Environment and Natural Resources argued that the dam is no longer helpful to city dwellers hence it would not be economically viable to demolish the apartments for which Kenyans took loans and mortgages to buy. In a meeting with officials from the water resources agency, NEMA, and residents of Seefar apartments, the committee faulted government agencies for approving construction of the buildings only to turn their backs now and call for demolition.
ii. Karen gives highest returns in commercial real estate
According to a recent report, upmarket Karen estate in Nairobi has the highest percentage returns to commercial real estate. Karen rental yields stand at 10.8 percent with each square foot averaging Ksh 117, compared to Westlands’ 10 percent yield and a price of Ksh 111 per square foot. According to the report, the performance is attributed to the high purchasing power of the residents who are willing to pay more for grade A offices taking root in the suburb.
iii. Work starts on Ksh 1.2 billion gated estate in Nairobi
An upcoming Ksh 1.2 billion gated community in Katani area near Jomo Kenyatta International Airport is expected to expand options for Kenyans looking to own a home in Nairobi and to ease the shortage of housing units in the city.
The housing project dubbed Lancet Village is expected to take approximately 24 to 30 months to complete, changing the face of the fast-growing area. It will comprise of 188 units of 2-3 bedroom apartments and 4 bedroom mansionettes. The 10-acre development is located 25 km from the CBD and 10 minutes away from JKIA and Syokimau Railways station.
iv. Kenya hotels win global awards at World Luxury Hotel Brands –Bali
Among the winners, the Sarova Chain of Hotels received most accolades for exemplary performance in the awards ceremony held in Bali, Indonesia, last week. Sarova Resorts and Game Lodges won a global and continental award for being a top luxury brand. Similarly, Sarova Mara Camp won a parallel accolade for being the leading luxury tented camp resort in the world.
v. Botswana’s Choppies Supermarket to take up space previously occupied by Uchumi
Botswana retailer Choppies is expanding to Ongata Rongai, taking over space previously occupied by Uchumi Supermarkets. Choppies will be joining Tuskys, Tumaini, and Clean shelf in the race to capture the populous Rongai as part of its Kenya expansion plan.
In its second half for 2017 results, the retailer indicated that it would invest Sh237 million ($2.27 million) on new Kenyan stores. Uchumi’s branch in the town was shut down following a Sh21 million default on rent. Choppies also opened a new store in at South Field Mall in Embakasi, Nairobi and plans another in Kiambu Mall, on the outskirts of the capital city, taking up space that was previously meant for Nakumatt. The retailer has also put up ‘coming soon’ signs in Nanyuki as it eyes the space that hosted Nakumatt before the latter was evicted from Cedar Mall.
vi. Allianz grows Asia-Pacific portfolio with deals in India and China
Allianz is expanding its €700m Asia-Pacific logistics portfolio with two new investments in India and China. The German insurer’s €60bn real estate investment arm has entered into a partnership with the Hong Kong-based Gaw Capital to acquire a portfolio of core modern logistics across China. Allianz Real Estate has also committed to 50% of start-up capital of US$225m (€198.3m) with the pan-Asian logistics group ESR to develop facilities across India. The deal in Chinese logistics assets was done on a 5.5% to 6% yield. The portfolio has some 375,000sqm of leasable space. In the current market in China, logistics assets are trading at US$450 to US$500 per square meter. According to Allianz CEO, the co-investment with Gaw was a stabilized portfolio and would provide a nice balance to its first logistics investment in China.
In India, Allianz has entered its second real estate investment program. The manager’s first real estate transaction in the country was made last year when it partnered with Shapoorji Pallonji to set up an office fund. The deals form part of Allianz’s strategy to allocate around 50% of its Asia-Pacific real estate investment exposure to growth markets.
C) KENYA REAL ESTATE TRENDS
Cement consumption continues on the decline in the 3rd Quarter
The country continues to experience a reduction in cement consumption indicating a tough growth for the constructions industry during the year. Consumption of cement dropped from 466,909 metric tons in August 2018 to 456473 metric tons in September 2018, according to the current economic survey report by Kenta National Bureau of Statistics (KNBS). This was also matched by a decline in the amount of cement produced to 460,546 MT from 473861 MT between the two months.
The report also showed a 3.76 percent decline in cement use in the first quarter of the 2018/2019 financial year. Cement that was used in the three months ending to September 2018 declined to 1.3 MT compared to the 1.4 MT in a similar period in 2017. The trend marks a slowdown in the construction industry from consistency evident since 2017 that saw a total of 5.7 million tones consumed. This represented a 9.5 percent decline from 6.3 million tonnes consumed in 2006. The decrease in production and consumption of cement may be an indicator that the construction sector is still struggling with the current oversupply in the market and low transactions have made developers hesitate to commence new-builds.
Construction approval irregularities continue to cause chaos as Ksh 300 billion project delays.
Estates along flight paths of Moi Airbase and Wilson Airport are to blame for the delayed launch of an expansive housing program. According to City Hall, four of the seven estates earmarked in the new plan under Nairobi regeneration program were on flight paths. The first phase of the project is expected to cost Sh300 billion and will put up between 10,000 and 12,000 units. It covers old and new Ngara, Pangani, Jeevanjee-Bachelors, Ngong Road Inspectorate staff quarters, Uhuru and Suna Road.
The areas include Ngara, Pangani, Jevanjee and Bachelors quarters, which are part of the Programme aimed at providing affordable and decent houses. The county government reported that it might be forced to construct 14-story buildings as opposed to the intended 30-story to avoid interference with the flight paths. Although talks continue between the Kenya Civil Aviation Authority, the county government and the ministries of Defense and Transport to give clear mapping of flight paths, residents argue that construction should go on. This comes after the county government of Nairobi started demolitions of buildings in grabbed public spaces. The watch on the execution of the project is on as the government aims to construct 500000 houses by 2022.
Continued non-compliance in rental real estate forces KRA to introduce training sessions
The Kenya Revenue Authority (KRA) is engaging landlords across the country in efforts to ensure they pay rental income tax. The taxman, in renewed efforts to widen the tax base, is offering clarity to property owners on the tax charged at 10 percent for gross annual incomes of between Sh144,000 and Sh10 million. Rental income tax came into force on June 1, 2016, but has registered low compliance rates, with most landlords failing to declare rental income.
KRA attributed non-compliance to poor bookkeeping, complexity in the previous tax system, general lack of awareness and informal operation by the industry players. To improve filing of tax returns, the revenue authority now wants to collaborate with stakeholders and investors. This will, in turn, ease the burden on conventional taxpayers.
In the session, newly introduced taxpayers will be educated on reforms at the authority that are aimed at improving engagements with the public. Also, there will be a relationship management program where each taxpayer has a relationship manager with whom they have close relations.
D) GLOBAL REAL ESTATE TRENDS
Canada predicts better real estate market for 2019 despite a 44 percent rise in housing prices in the last 5 years.
Canadian real estate prices are slowing in growth, but they made a wild run over the past few years. The Canadian Real Estate Association (CREA) numbers show price growth made a huge deceleration into October. Price growth is now close to target inflation, but over the past 5 years they’ve increased by over 44%., not just in Toronto or Vancouver, but national average. CREA reported the benchmark across Canada reached $623,000 in October, down 0.13% from the month before. Prices are now up 2.33% from last year, and up an absurd 44.04% over the past 5 years. The aggregate number is adjusted for volume by region, and housing type.
According to the report, Vancouver’s real estate pricing is slowing down but it’s still the most expensive market in the country. Vancouver’s benchmark reached $1,062,100 in October, up 1.03% from last year. Oakville, an affluent suburb of Toronto, reached $958,700, up 2.19% from the same month last year. Fraser Valley, a board so close to Vancouver agents often do both markets, reached $853,600, up 6.84% from last year. Worth also noting that British Columbian real estate markets are seeing huge declines in sales right now. The rise in prices have over the time been blamed on the new tough mortgage requirements, foreign buyers’ taxes, and rising interest rates. Despite the continued rise, however, researchers predict improvements in 2019.
Hong Kong diminishing market yields responsible for its reduced attractiveness.
Hong Kong is the best location in Asia for setting up a financial company, according to a poll published by global real estate services and management company Colliers International. Another survey by accounting firm PwC and US-headquartered think tank Urban Land Institute (ULI), however, found the city’s investment attractiveness was on the decline. In the survey by Colliers, the special administrative region tops a list of cities in Asia for setting up finance companies because of its high market capitalization, cross-border banking, inward flowing investment and large population of resident billionaires. Tokyo came a close second while Singapore was in third position. The increasing importance of financial technology, and Hong Kong’s emergence as a FinTech center due to its proximity to China are key reasons for optimism about the city’s ability to remain a leading financial center. According to ULI and PWC, however, the city’s attractiveness is on the decline due to poor office market yields. However, the decline did not come as a surprise as the market is maturing.
In Kenya, similar notions have been made, citing Kenya as one of the best locations for direct foreign investments from real estate to businesses. However, contradictory reports indicate that Kenya is losing its attractiveness to neighboring countries such as Ethiopia. According to EY, Ethiopia’s political reforms, as well as dedicated ambition in textiles, construction, and real estate, are among the factors leading to the surge.
E) THIS WEEK PRICE ANALYSIS – KAREN, NAIROBI
This week’s focus is on the land, sale, and rental prices for 2-5 bedroomed apartments/ houses in Nairobi’s Karen. 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 – Apartments & Houses
Land Prices (Commercial/ Residential)
F) KENYA INTEREST RATE WATCH
Treasury bills were undersubscribed for the third week at 48.8 percent down from 93.81% last week. The 91 –Day, 182-Day and 364 –Day bills yielded 7.342%, 8.245%, and 9.57% rates respectively.
The 364-Day bill performed at 80.44% recording the highest subscription, followed by the 91-Day bill at 43.46 percent.
Out of the Ksh 24 million on offer, there were Ksh 11.71 bids received.
G) KENYA EQUITY MARKET WATCH
The total shares traded during the week decreased by 17.65 percent to 143 million shares this week. The NASI, the NSE- 20 and the NSE-25 share index decreased by 0.53, 1.57, and 1.1 percent respectively.
Market capitalization decreased by 0.5 percent down from last week’s 2142.3 while the equity turnover increased by 53 percent.
H) KENYA CAPITAL MARKETS ANALYSIS SUMMARY
Umeme Limited led the gainers’ chart closing at 10 percent gain. Other top gainers of the week included Olympia Capital Holdings, and East Africa Cables closing at 4.26 and 3.85 percent gain.
Among the top losers of the week were Sasini Tea, KPLC, and Diamond Trust Bank of Kenya closing at Ksh 20.25, 3.5 and 146 share price respectively.
I) CURRENCY HIGHLIGHTS
Last week, the shilling strengthened against the US Dollar and the Sterling pound at 0.735 and 0.139 percent. It however weakened against the euro at 0.102 percent and further against the Indian rupee.
In Africa, there was a dismal performance overall compared to last week as the shilling weakened against the SA Rand, the Ugandan shilling, and the Tanzanian shilling.
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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