Topical Feature: Real Estate Finance Capital Structuring in Kenya, and Considerations to make to reduce the Cost of Finance, & Weekly Report #15/2021

A look at Real Estate Finance Capital Structuring in Kenya Real Estate Market, and the key considerations to make to reduce the cost of finance, as well as risks management measures for Investors:

Real Estate development projects are capital-intensive ventures and are highly cash flow dependent. The requirement for capital is also very time-sensitive in order to acquire the best properties within a strategic time frame, which can produce the optimum return on investment. In most cases, real estate investors seek professional financing sources for their projects in the form of debt or equity, among other funding sources such as peer-to-peer lending, crowdfunding, Joint Ventures, and home equity financing.

However, many Kenya real estate projects stall in the middle of the development or require re-capitalization due to inadequate financial planning, and insufficient financing. Therefore, the optimal cost of financing that maximizes a project’s market value while minimizing its capital cost needs to be determined. The following are the key considerations to make to reduce the cost of finance, while maximizing a project’s market value and return on investment.






Cost of Capital Considerations

One of the major considerations that investors must take into account when planning out capital structure is the cost of capital. For an investment to be worthwhile, the expected return on capital must be greater than the cost of capital. A project’s securities typically include both debt and equity; therefore, an investor must calculate both the cost of debt and the cost of equity to determine a project’s cost of capital and the best mix that reduces the cost of finance.

Tax Considerations

The fact that interest is tax-deductible means that as an investor gears up, their tax bill reduces. The tax advantage enjoyed by debt over equity means that a company can reduce its Weighted Cost of Capital (WACC) and increase its value by substituting debt for equity, providing that interest payment remain tax-deductible.

However, as an investor gears up, interest payments rise and reach a point that they are equal to the profits from which they are to be deducted; therefore, any additional interest payments beyond this point will not receive any tax relief. At that point, debt becomes more expensive as compared to equity or other sources of finance.

Trade-Off Consideration (Equity to Debt Ratio)

The trade-off theory of capital structure refers to the idea that an investor chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases. On the other hand, using equity is initially more expensive than debt because it is ineligible for the same tax savings. Still, it becomes more favorable in comparison to higher levels of debt because it does not carry the same financial risk. Therefore, a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.

As more capital is raised and marginal costs increase, the investors must find a fine balance in whether it uses debt or equity after internal financing when raising new capital.

Window of Opportunity

A window of opportunity is the time when a particular source of funding that is unattainable is available at an affordable cost. Therefore, Investors need to determine the most appropriate time to borrow, considering interest rates.

Bankruptcy Considerations

Bankruptcy occurs when an entity cannot repay the debts owed to creditors and must take action to regain solvency or liquidate.

When gaining the financing for capital, Investors must take the possibility of bankruptcy into consideration. This is especially important when looking into financing capital through debt. If potential creditors sense that bankruptcy could be likely, investors will have a harder time acquiring financing or paying a high interest rate that significantly increases the cost of debt.

These investors will have to rely heavily on equity, which once again can be seen as a negative signal about the project’s current state, putting downward pressure on equity values. That places a high cost on raising capital, with the potential for low returns. Therefore, it is best that the investor considers any possibilities of bankruptcy and works to minimize them when designing the capital structure.

Risk Management Measures

The optimal capital structure for a real estate project, which is measured by the mixture of debt and equity, is determined by the level of the Weighted Average Cost of Capital (WACC). The lower the WACC of a real estate project, the more optimal it is for the cost mix of financing. The lower the cost of capital, the greater the present value of the firm’s future cash flows, discounted by the WACC. Thus, any real estate investor’s goal should be to find the optimal capital structure that will result in the lowest WACC to maximize the project’s value.

An Investor should have a limit to the amount of debt injected into a project because an excessive amount of debt increases interest payments, the project’s earnings volatility, and the risk of bankruptcy. This increase in the financial risk to investors means that they will require a greater return to compensate the interest rate, which increases the WACC—and lowers the market value of a business and therefore the need for a perfect balance, which calls for a real estate consultant or a financial analyst to create this balance.


To gauge how risky a real estate project is, potential financiers look at the debt/equity ratio. They also compare the amount of leverage other projects in the same industry are using—on the assumption that these projects are operating with an optimal capital structure—to see if the investor is employing an unusual amount of debt within its capital structure. However, because investors are better off putting their money into projects with strong balance sheets, it makes sense that the optimal balance generally should reflect lower levels of debt and higher levels of equity. Another implication is that investors should hold cash for speculative reasons; they should build up cash reserves so that if at some point in the future they have insufficient retained earnings to finance all positive Net Present Value (NPV) projects, they use these cash reserves and therefore not need to raise external finance.

Buildafrique Consulting Group is a specialist and expert in Joint Venture Structuring in Kenya, Real Estate Project Finance and Capital Raising,  conducting Real Estate Feasibility Studies, Development Project Management and Consultancy in Kenya for real estate investment projects.






i.) Fuel tax to rise in Sh255bn IMF loan deal

The Treasury is under pressure from the International Monetary Fund (IMF) to double the value-added tax (VAT) on all petroleum products in an effort to cut the budget deficit and tame public borrowing. According to the IMF, Kenya should impose a 16 percent VAT on fuels from the current eight percent when crude oil prices fall. The IMF’s push for the fuel tax was revealed in an advisory to the government after the fund’s board approved a new loan for Kenya valued at $2.34 billion to help the country continue responding to the Covid-19 pandemic and address its debt vulnerabilities.





ii.) Kenya shilling holds steady against U.S dollar

On Wednesday, 7th April 2021, the Kenyan shilling strengthened to a seven-month high against the U.S dollar, with traders linking this to flower remittances, improved forex reserves, and muted foreign currency demand on reduced dividend repartition. That was the strongest level since 1st September 2020 when it was at 108.21, and is despite Central Bank of Kenya (CBK) foreign exchange reserves opening the month at a three-year low of Sh802.6 billion ($7.343 billion) or 4.51 months import cover.





iii) KRA revenue grows to Sh144.6b in March 2021

The Kenya Revenue Authority (KRA) recorded a jump in its 2020/2021 Financial Year revenue performance after collecting Sh144.6 billion in March 2021, surpassing the revenue target. Despite the slow economic progression, KRA registered 11.2 per cent revenue growth collecting a surplus of Sh6.6 billion in March 2021. According to KRA, the revenue performance has been enhanced by the sustained implementation of compliance efforts, revenue enhancement initiatives, and improved service delivery to taxpayers.




iv.) Kenya’s inflation edges up to 5.90pc in March 2021

On Wednesday, 7th April 2021, the Kenya National Bureau of Statistics reported that Kenya’s year-on-year inflation increased to 5.90 percent in March 2021 from 5.78 percent in February 2021. In a statement, the Kenya National Bureau of Statistics (KNBS) reported that month–on–month inflation was 0.40 percent, down from 0.70 percent in February 2021. According to the Institute of Certified Public Accountants of Kenya (Icpak), the increase in prices has been the highest since 2007, jumping by Sh15.82 in two months and leading to high inflation.








i.) Public-private partnership for 11,000 housing units set up by Kenya Defense Forces

The Kenya Defense Forces (KDF) is seeking private investors to help fund, build and operate housing for its personnel. According to KDF, the Ministry of Defense is faced with a shortfall of accommodation for the Kenya Defense Forces (KDF). In a statement, KDF reported that the institution needs at least 11,200 residential units to be delivered through the use of the PPP project delivery model. KDF will set aside U.S $9.2m for the first phase of the project, which will see the construction of 2,340 residential units. The rest of the funds for the other phases are expected to come from private investors.





ii.) Construction of U.S $596,603.94 cancer center in Kwale begins

On 3rd April 2021, the construction of a US $596,603.94 cancer treatment center in Kwale County kicked off. According to Governor Salim Mvurya, the oncology center will ensure early detection, hence saving many lives. The center will provide chemotherapy treatment as well as surgical and laboratory services for patients after the completion of the first phase that will cost U.S $321,248.28. According to the governor, completion of the second phase will enable the center to have a full-fledged oncology department capable of handling all types of cancers and a treatment center with a capacity of 40 patients.





iii.) Buxton Housing Project to be launched in May 2021

U.S $55m Buxton Housing Project in Mombasa County is scheduled to be launched on 1st May 2021 by President Uhuru Kenyatta. According to the Housing and Urban Development PS Charles Hinga, the Buxton Housing Project is expected to be the country’s largest affordable housing project. The project plan is to build residential units comprising one, two and three-bedroom apartments, a youth center, at least one kindergarten, a social hall, an open playing field, commercial units, and many other facilities. Once complete, the new one-bedroom units will go for Sh1.8 million each, two-bedroom for Sh3 million and the three-bedroom units will go for Sh4.2 million.




iv.) Leather dealers question award of Sh1.2bn warehouses tender

Leather Industry stakeholders have raised concern over awarding of Sh1.2 billion tenders for the construction of four industrial warehouses in Machakos County. They claim the awarding of the tenders by the Kenya Leather Development Council (KLDC) for the construction of four industrial warehouses is being driven by personal interests. According to the stakeholders, the contract has been awarded the full knowledge that the council has not received funds for the works in both the printed estimates and the supplementary budget. They say that the existing funds should be utilized on the ongoing construction of the Common Effluent Treatment Plant (CETP).





i.)  Airbnbs to get licenses from tourism authority

Owners of Airbnbs facilities will now have to obtain licenses and pay annual fees to run their homestay businesses. According to the Tourism Regulatory Authority (TRA), the move is aimed at regulating the fast-evolving accommodation and services sector. TRA further stated that the facilities will be listed in the Fourth Schedule of the Tourism Authority Regulations 2014 and are required to be registered, inspected and licensed by TRA before the commencement of their operation. According to the TRA, owners of Airbnbs will pay a one-off application fee of Sh1, 000 and an annual license fee of Sh26, 000.





ii.) Demand for office spaces plummet, residential returns improve

According to Cytonn Q1’2021 market review report, the residential sector in real estate has continued to record improved performance, as the retail and commercial spaces continues to record a decline. According to the report, the residential sector recorded an improvement in performance, with average total returns to investors coming in at 5.1 per cent year on year, up from 4.7 per cent recorded in FY’2020. On the other hand, the retail and commercial office sectors recorded declines in rental yields to 7.4 and 6.8 per cent in Q1’2021, from 7.5 and 7.0 per cent, respectively, in the full year 2020.



iii.) Shelter Afrique plans to issue Sh55bn Kenya currency bond

Pan African housing development financier Shelter Afrique is set to issue Sh54.8 billion ($500 million) local currency bond in the Kenyan market after a bounce to profitability in the year ended December 2020. According to the firm, the East Africa bond will be listed in Nairobi Securities Exchange (NSE) before the end of 2021, with the proceeds expected to finance affordable housing construction projects in Rwanda, Uganda and Tanzania.





iv.) Hotels hit hard by the new lockdown rules

Easter projections at Coast hotels stood at 10 per cent after the new lockdown measures announced by President Uhuru Kenyatta to stem the spread of the third wave of Covid-19. According to Denis Gwaro, the general manager at Plaza Beach Hotel in Mombasa’s North Coast, hotels have now been forced to entice locals with great offers to salvage the situation. Following President Uhuru Kenyatta’s directive, he noted that the hotel was forced to send 60 per cent of the workers home. Also, hoteliers noted that hotel bookings stand at 20 per cent, with some of the facilities recording zero reservations, following the presidential directive on Covid-19.





At Week #15 of 2021, the following are Kenya Real Estate and Development Trends that are influencing Investment Decisions in Kenya Real Estate Market.

i.) Developers preference for holiday homes over hotels increases amid Covid-19

Hotels are losing preference as centers for vacations and holiday stays amid the Covid-19 pandemic, as holiday homes create more traction for vacationers. That has led to more development of holiday homes as compared to hotels amid the Covid-19 pandemic.

According to developers, hotels do not quite give the same home-away-from-home feeling, and as bookings in some of Kenya’s busiest hotels drop, holiday homes have recorded increasing popularity. Also, home buyers purchase houses and leave them empty so they can use them whenever they are tired of the urban rush. Others opt to rent the houses out to visitors for nights or longer stays. Furthermore, with the lucrative market for holiday homes, many property owners have converted their houses into Airbnbs.

Naivasha is one of the areas that have become attractive to developers of holiday homes. The town’s proximity to Nairobi, its scenic landscapes, wildlife parks, and the lake have put the town in the sights of property developers.


ii.) Specialization in target real estate niches increase amid Covid-19

To improve their margins and levels of differentiation, developers are specializing in target real estate niches and segments (such as holiday homes, affordable housing, high-end or low-end apartments, hospitals, or industrial warehouses) in which they can build competitive advantages.

Developers are also specializing in using different construction materials, sub-segments, or methods of construction. That has made real estate investors to develop and retain knowledge and capabilities to maintain their competitive advantages. Also, Real estate investors continue to weigh the effectiveness, efficiency, and brand positioning that greater specialization enables against the potential risk or cyclicality benefits of a more diversified real estate portfolio.





At Week #15 of 2021, the following are the Global Real Estate and Development Trends that are influencing Investment Decisions in Kenya Real Estate Market.

i.) Demand for smaller, high-quality industrial space increases globally

With the Surging demand for e-commerce, the number of large warehouse sites is shrinking; a trend accelerated shift towards online retail during government-ordered lockdowns to combat the Covid-19 pandemic. According to Legal and General Investment Management (LGIM), the rise of e-commerce and a scarcity of high-quality and well-located industrial assets has created a significant supply-demand imbalance.

A study by property specialists Savills shows that 2020 was a record year for demand in small and high-quality logistics properties. In Europe, take-up reached 26 million square metres – an increase of 12% on 2019. The report highlights the fact that although the situation remains tough in parts of the export economy and manufacturing sectors, e-commerce has benefited disproportionately.

According to the study, the growing demand for smaller logistics properties is attributed to an increase in e-commerce, leading to an increase in urban logistics space requirements. Also, the impact of new technologies and artificial intelligence in the industry has enhanced demand for smaller, high-quality industrial space that is flexible by design and located in dense urban areas. With the increase in e-commerce in Kenya, smaller, high-quality industrial spaces which are well located are expected to be the new trend.


ii.) Airbnb supply gets a boost as vacationers prefer remote stays

According to new data from the analytics firm AirDNA, home rental company Airbnb Inc’s has supplied more than doubled vacation homes over the past four years while surpassing some of the traditional hotel chains combined. According to AirDNA, the relative appeal for short-term rentals with larger living space and their location in remote destinations continues to prove vital for Airbnb amid the Covid-19 pandemic, allowing it to perform better than traditional forms of lodging.

Airbnb’s global active listings increased by 2.5 per cent as of February 2021, compared with a year earlier. Globally, there are over 5.4 million active listings on Airbnb, with more units available for rent than the combined total of 3.3 million units at hotel chains Marriott, Hilton, and IHG. Going forward, Airbnb is expected to be the new trend in the hospitality industry, and therefore, Kenyan real estate investors could take advantage of this trend.







Essential of a Health Care (Hospital) Real Estate Business Plan for Capital Raising and Investment.



Health Care (Hospital) Real Estate Investment Projects are among the most viable real estate investment project today; going by the rising need of health care in the world as a result of life style diseases and global health care pandemic. In such, Kenya has not been left behind in this, whereby more Investors are getting into real estate investment in health care to meet the rising need of the market. One of the challenges with this investment is that it is high capital intensive, thereby requiring a need to raise capital funding, in most cases from Investors. The challenge come in coming up with a bankable real estate business plan for sourcing capital funding, and knowing the information to capital in the business plan for the Investor.






A Real Estate Business Plan is an Investment Proposal that articulate the idea of the investment project, its implementation strategy, financial benefits to the investors, and social economic benefits to the larger society. It also provides insight on steps to be taken and the resources required for achieving the goals sets within the set timelines. To have an excellent real estate business plan, a good understanding of the real estate market is essential, including the objectives of the investment project, as well as expectation of the finance investor. So what should you include in a Real Estate Business Plan for a Heath Care Project?



The following are the essential components of a real estate business plan for a Health Care (Hospital) Investment Project:

i.) Executive Summary

The executive summary is the first item on a real estate business plan. It should summarize all the components of the project, these being the objectives, research finding, proposed investment, funding requirements, the purpose for which it will be used, the collateral available, and the expected outcomes.  The executive summary should also include the mission statement of the Business Component of the project, and a short description of its products and services.

ii.) Project Description and Business Approach

Under the project description, critical information about the real estate project, business goals, and the target customers should be included. The project description should also discuss how the real estate project will stand out from others in the market. Additionally, the Business Approach of the health care business entity should be articulated and the Value proposition in the market.

iii.) Market Feasibility Study and Analysis.  

The real estate feasibility study should show the market performance and available opportunities for the investment venture.  In addition, this section should provide details about the demand needs and supply analysis of similar products in the market, as well as Competitive Landscape Analysis., and Market SWOT Analysis.i

iv.) Concept Design

Concept Design entails an outline design and artistic impressions of the proposed project design to inform on the proposed investment project. This should also show the land-use provision of the available land, as well as various project amenities.

v.) Project Cost Plan

The Project Cost Plan should include a breakdown of all the Cost Input in the project, as well as all the cost elements; which include the construction costs, statutory approval fees, professional fees, marketing fees, financing costs, and administrative costs.

vi.) Project Management and Implementation Methodology

The Real Estate Business Plan should also articulate the methodology of implementing the project at the site including the management structure of the same. This should include information on the Project Team and Consultants, Project Timeline, and detailed chart of Project Management Methodology from project commencement to completion.

vii.) Operational Methodology & Management – (Business Operator)

Health care investment requires specialized management and operational expertise for running the business entity. The Real Estate Business Plan should outline the proposal operational methodology for the business entity and how this shall guarantee return on investment for the investors, as well as managing the operational risks of the business venture. Additionally, the Business Plan should include the name of the Business Operator, mostly a health care operation management company, if the investors are not specialized in the field of health care.

viii.) Financial Analysis and Investment Model

The business plan needs to illustrate the valuation and the financial model of the real estate product, which include value, financial goals, and returns of the project. The financial plan should also include the income statement of the investment venture, cash flow, and balance sheet, and long-term goals regarding the profits and losses of the project.

ix.) Capital and Ownership Structure.

Capital Structure should show how the Project Sponsor intends to finance the project, and the investment stake that he/she is offering the investor incase of equity financed project. It should also the ownership structure in the investment model for equity financed project, or optimum debt equity ratio for debt financed projects.

x.) Marketing Plan and Marketing Penetration Strategy.

This section should describe how one intends to get his/her product in front of potential clients. As such, the business plan should pinpoint the steps that shall be taken to promote the products, including sales and marketing strategies, as well as the marketing penetration strategies of various market products in the project.

xii.) Risks Analysis

To come up with a strong Business Case for an Investor, various risks noted during feasibility study must be analysed, together with appraisal of detailed risks mitigation strategies. This is important in order to give confidence to the Investor, as well as allow set objectives and goals to be realized in the project.

xiii.) Triple Bottom Line Benefit Analysis

Last but not least, the real estate business plan for a Health Care Project should outline its economic, social, and environmental benefit to the larger community, or how the Investor intend to incorporate these socio-economic benefits in the project. By Health care being an important social requirement to the society, the business plan should be able to articulate how this shall be achieved through the Investment.

The purpose of a real estate business plan is to articulate a bankable investment case or proposal to the investors of the project. As such, the business plan should be inspiring and informative. Besides, a detailed real estate business plan gives a confidence in pursing the investment project other than just being used to secure funding.



The Consultants to engage in Project Finance and Consultancy of helping you rope in a Joint Venture Partner is a Real Estate Finance Consultant.  Buildafrique Consulting Group is a specialist in Project Finance, Capital Raising, and Joint Venture Capital Structuring.









What are the Various Property and Real Estate Valuation Methods and Approaches in Kenya, for valuing Properties and Real Estate Investments?











There are many Property and Real Estate Valuation Methods used by Property Valuers in Kenya and the world at large. The method of use by a Valuer depends on the objective of the Valuation, and the data available to the Valuer or Assessor in determining the Value of the Property of Real Estate Investment.


Below is a summary of the various methods for Real Estate and Property Valuation, for your information as an Investor, to know the methods that should give credible value for your property or real estate investment.

  • Comparison Method: This Valuation method uses comparable evidence like Sales Prices, Rental Prices, and Yields as the basis for the data used in determining the Value of the property. The Valuation process include collecting and checking evidence, identifying and adjusting for differences, and using the resulting evidence to value the property.
  • Income Method: This Valuation method that is used to value Income generating properties or investment properties that are already generating income. The two techniques that are widely used to value income generating investment properties are Income capitalisation and Discounted cash flow (DCF).
  • Cost Approach: This Valuation method is used to for accounts purposes and for rating valuations. This includes valuation required for company accounts, business rates, and Insurance, commonly known as reinstatement valuation. Cost Approach Method of Valuation is also known as Depreciated Replacement Cost (DRC) method.
  • Profit Method: This Valuation method is used to value properties typically sold as part of a business (properties equipped as operational entities), because it is difficult to obtain evidence of property prices and rents The Value is determined having regard to estimated future trading potential of the business venture.
  • Residual Method: This method is used to value development land. The method differs from other methods of valuation because the property being valued does not yet exist. The value of the proposed development is estimated, from which the estimated costs of its construction are deducted, leaving a ‘residual’ land value. Scale of development varies enormously and the complexity of development appraisal models follows accordingly. The two common tasks associated with development land are: Estimation of land value and Appraisal of profitability (or viability).




This week’s focus on Development Cost Analysis is for Juja Area in Kiambu County, this being residential and commercial area in Kiambu County. The Development type in this area according to the land-use and county zoning regulations includes Apartment Blocks, Maisonettes and Town House, and Shopping and Retail Complex.

Below is an analysis of Construction Cost per Square Meter (SM), for the option of procuring the development project through a Building Contractor, or an option of direct procurement of the Materials and Labour through a Labour Contractor for recommended building types.



The Real Estate price analysis focus for this week is on land, sale, and rental prices for a 2 and 3 bedroom apartment in Juja area – Kiambu County. The data were obtained through surveys, and analysis of asking prices on property listings in Nairobi.

i.) Sales price – Apartment and houses

ii.) Rent price – Apartment and houses

iii.)Land price per acre (commercial/residential)



T-bills recorded an under subscription in the week ended 9th April 2021. The overall subscription rate came in at 83.62 percent, a decrease from the oversubscription of 115 percent recorded in the previous week.

The highest subscription rate was in the 364-day paper of 150.8%, an increase from 121.9% recorded the previous week. The 91-day and 182-day papers’ subscription rate also increased to 135.6 and 71.0 percent, from 108.8 and 60.8 percent respectively from the previous week.

 91 T-bill rates increased by 0.011%, from 7.085% the previous week to 7.096%. CBK offered a total of Ksh 4 Billion, and bids amounted to Ksh 3.161 Billion, of which all was accepted. 182-day T-bill rate increased by 0.004 points from 7.910% the previous week to 7.914%. CBK offered a total of Ksh 10 Billion, and bids amounted to Ksh 2.559 Billion, of which all was accepted. The 364-day -bill increased by 0.058 points from 9.308% the previous week to 9.366%. CBK offered a total of Ksh 10 Billion, and bids amounted to Ksh 14.626 Billion, of which Ksh 12.665 Billion was accepted.

During the week ending 8th April 2021, the money market was liquid supported by government payments and net redemption of government securities. Commercial banks’ excess reserves stood at KSh 14.1 billion in relation to the 4.25 percent cash reserves requirement (CRR).



Investors’ trading confidence at the Nairobi Securities Exchange (NSE) reduced in the week ended 9th April 2021, evidenced by decreased trading activities. During the week, foreign investors assumed a net buying position by accounting for 90.98% of the total market sales and 70.17% of the total market purchases.

The NSE All-Share Index, NSE 20 share index, NSE 25 share index, market capitalization, total shares traded, and equity turnover, which are the main measures of the equity market’s performance, changed by -1.30%, 0.23%, -1.16%, -1.30%, -84.29 and -86.63%, respectively. The I-REIT turnover and I-REIT deals reduced by 82.43% and 57.57%, respectively, majorly attributed to the low occupancy rate for commercial and retail spaces.



The Kenya Shilling strengthened against major international and regional currencies during the week ending 8th April 2021, on the back of increased forex inflows. It exchanged at KSh 108.24 per US dollar on 8th April 2021, compared to KSh 109.35 per US dollar on 1st April 2021.

The usable foreign exchange reserves remained adequate at USD 7,425 million (4.56 months of import cover) as of 8th April 2021. This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover and the EAC region’s convergence criteria of 4.5 months of import cover.



At Week #15 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.) Anticipated increase in petroleum prices

International oil prices edged higher on 7th April 2021 on the prospects for stronger global economic growth amid increased Covid-19 vaccinations and a report that crude inventories in the United States, the world’s biggest fuel consumer, fell. Brent crude futures rose by 16 cents, or 0.3 per cent, to $62.90 a barrel by 0657 GMT, while U.S. West Texas Intermediate crude for May 2021 was up 14 cents, or 0.2 percent, to $59.47. That combined with the pressure from the International Monetary Fund (IMF) to the Kenyan Government to double the value-added tax (VAT) on all petroleum products in an effort to cut the budget deficit and tame public borrowing, is expected to further increase the price of fuel in the country. The IMF reckons that Kenya should impose a 16 percent VAT on fuels from the current eight percent when crude oil prices fall.

In Kenya, the increase will have a far-reaching effect on Kenyans who are struggling to survive due to the negative effects of the Covid-19 pandemic on the economy, as most of them have lost their jobs or have suffered pay cuts, leading to more lease breaks. Furthermore, the knock-on effect that the high cost of fuel has on transport will be transferred to the price of goods and consequently impact this negatively. As a result, more money will be spent on food and transportation and less on household expenses such as rent. Businesses like construction that depend on transportation of goods are expected to adjust their cash flows to cater to the expected high cost of production amid a slowed economy attributed to the coronavirus pandemic. As a result, the cost of related items like building materials will go up as transporters load the extra charges on traders.

Furthermore, construction cash flows are expected to be adjusted in anticipation of the increase in prices. Procurement of construction materials is also expected to rise in the next few weeks in anticipation of this increase to reduce construction costs and, hence, real estate prices.

ii.) Strengthening local currency

The Kenya Shilling strengthened against major international and regional currencies during the week ending 8th April 2021, on the back of increased forex inflows. The local currency, which strengthened to an eight and a half month-high against the US dollar on 8th April 2021, was spurred by inflows from foreign investors interested in investing in a government infrastructure bond. The Kenyan shilling is now trading at its highest rate against the United States dollar since December 2020, signaling easing pressure on the local unit, which had come under pressure from major world currencies in 2020. Optimism on the rebound of the macroeconomic environment this year has, however, served to anchor the shilling despite the prevalence of volatility from the evolving Covid-19 pandemic.

The strengthening of the local currency is expected to accelerate a strong rebound in the export and import market, thereby boosting economic recovery in the country. A stronger shilling is expected to cut the cost of imports for construction raw materials, building materials, fittings as well as consumer and capital goods while serving to trim the cost of external debt service, which is largely biased towards dollar-denominated repayments.

Also, the strengthening of the local currency is expected to reduce electricity costs as the forex levy will be passed to consumers, who are majorly the tenants and households. Consequently, the reduced cost of power is expected to reduce lease breaks in the commercial, industrial and retail sectors, as tenants’ cash flow will be boosted. The strengthening of the local currency against the dollar is also expected to attract more small-scale tenants and contribute to a reduction in retail goods prices, which is expected to increase retail footfall as the cost will be passed to consumers. That is expected to increase retailers’ income and hence reduce the possibility for lease breaks.

As a risk management measure, Real Estate Investors are advised to use this window to import construction raw materials, fixtures, and fittings more conveniently at a lower price. Investment Opportunities are also expected to emerge to large retail space owners who could remodel their store spaces to smaller spaces to attract high tenancy, taking advantage of the reduced retail cost.



i.) Webinar: Architectural, Engineering, & Construction Forum- The webinar will discuss the importance of solid project management in these fields.

Date: 13th April 2021

Time: 10:00 PM

Venue: Online

Event Organizer:





ii.) Conference: The Link Between Affordable Housing and Short-Term Rentals– The conference will review the link between affordable housing and short-term rentals (STRs), housing and tourism trends, and how communities can identify whether STRs are affecting their community.

Date: 20th April 2021

Time: 9:00 AM – 6:00 PM

Venue: Online

Event Organizer:








Writer of the Report:

This Report 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:

  1. Feasibility Studies and Market Research.
  2. Project Finance and Capital Raising.
  3. Joint Venture & Finance Structuring.
  4. Project Management.
  5. Investment Design Appraisal.
  6. Quantity Surveying
  7. Construction Cost Consultancy
  8. Physical Planning and Planning Permissions
  9. Environmental Management and Impact Assessment
  10. Real Estate Development and Structured Investment Solutions
  11. Property Valuation
  12. Marketing and Property Sales Agency
  13. Property Management and Facility Management

Our Contacts:



The information contained in this report is for general information purposes only. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information contained on the report for any purpose. Readers are therefore advised in all circumstances to seek the advice of Registered and Licensed professionals in all matters related to Real Estate Investment and Project Development.