As the different sectors of the economy anticipate re-opening after Covid-19 economic disruption, the process will take different shapes, with different sectors opening up in different ways and at differing speeds. The coronavirus still lurks, and the ability to contain the second wave will dictate what happens next in the economy. As the economy reopens, the big challenge among real estate investors will be how to navigate the harsh environment created by the Covid-19 pandemic. Furthermore, Investors’ eagerness to restart and rebuild is understandably immense, but so are the questions that a return to business raises. The financial health, employee motivation to return to work, rate of demand pick-up, and the organization’s operations and supply chain.
As such, Real Estate Investors will need to take a holistic approach to restart in order to realize a return on investment (ROI). The following are the salient restart, marketing, and brand positioning strategies for Real Estate Investors, based on our research and expertise in the real estate industry.
a.) Creating a detailed relaunch map
The Covid-19 crisis has shattered many of the assumptions and tools that Investors rely on for decision-making. Therefore, for the restart, Investors will need to define a solid framework for action in a highly volatile environment. As such, a detailed relaunch map, site by site, segment by segment, customer by customer, and product by product, will be required to prioritize the recovery opportunities. The map will guide marketing and sales effort, production, supply chain, construction projects, and help determine each project’s recovery timeline. This will also enable investors to get a head start on reassessing projects, investments, and expenditure while incorporating variables of high-impact market conditions.
As such, this strategy should cover:
- regulatory requirements, such as new tax regulations
- Breakdown of clients’ base.In their planning, Investors will need to clarify the parameters and assumptions about their clients. This includes clients’ market confidence and financial health as it determines their propensity to consume or save.
b.) Reviving demand
During the restart, one imperative for investors will be to revive the demand for their products. Therefore, they will have to stimulate demand, guarding against any risk of distorting price models or fueling a deflationary curve. As Such, they will have to be ready to reallocate brand positioning and marketing expenses quickly. Nevertheless, the marketing expenses should be weighed against the risk of triggering a price increase leading to a supply-demand imbalance and competitive approaches that destroy value due to high pricing. Discounts and promotional models should be well thought and accurately implemented for sustainability.
Furthermore, the marketing strategy will have to be optimized by making product offerings which are in line with the Covid-19 pandemic-related shift in demand.
The following are the brand awareness and marketing strategies an investor could adopt to optimize his/her marketing strategy.
i.) Content marketing Campaign and virtual reality
An Investor could create digital content in the form of videos, blog articles, podcasts, and webinars, to increase their online presence as most people are spending much of their time online. Such videos include videos showing property’s features, which will make one stand out from other investors who use images and written descriptions. Furthermore, investors need to adopt digital marketing strategies such as virtual tours and virtual open houses for clients who cannot visit the development site.
ii.) Social Media Marketing
Real estate investors should pay more attention to their real estate social media marketing techniques, as most people are spending significant time on social media. They should, therefore, create unique posts for all social media channels, as each one of them generates a different type of real estate leads.
iii.) Maintain a consistent marketing presence
Consistent marketing puts an investor’s name and brand on potential clients’ minds for future consideration. Real Estate investors could achieve this by consistently using the marketing strategy they have chosen for their product, for instance, updating social media posts frequently.
iv.) Optimize Your Website for Search
When it comes to making a real estate product purchase, most people will go online before visiting a development site. An investor could, therefore, optimize his/her website such that it is user and SEO-friendly. Website sitors should be able to navigate through using their phones and computers comfortably.
c.) Increase decision making speed
Investors should Increase the speed of decision making during the restart phase to address a large number of interdependent issues simultaneously. It will be important to maintain the flexibility, speed of execution, and simplified decision and reporting lines for crisis management. This will involve regularly establishing situational assessments, developing potential scenarios, designing and adapting the strategic road map, determining the strategic actions and movements to be undertaken in each scenario, and identifying trigger thresholds allowing the Investor to act systematically at the right time.
d.) Ensure optimal use of working capital
Real Estate investors must model their financial data in each transaction and systematically identify factors that could affect liquidity and determine appropriate measures to preserve financial resilience. This way, they will be able to monitor and use their current assets and liabilities for maximum return on investment.
The brand positioning and restart strategies mentioned above will call for due diligence for Investors to position themselves ahead of the competition and facilitate real estate transactions. Therefore, embracing these actions will help real estate investors to value-assure the restart.
B.) WEEKLY NEWS HIGHLIGHTS
MAJOR ECONOMIC NEWS HIGHLIGHT.
i.) Return on Bank savings at the lowest rate since 2016
According to CBKs new data, the savings rate offered by banks dipped to an average 3.78 percent in September 2020, the lowest in four years on high liquidity. The data shows that the average return on savings plummeted to the lowest point since August 2016, when the rate was 1.68 percent. According to the Kenya Bankers Association head Mr. Habil Olaka, there has been a reduced demand for cash for onward lending by banks and as a result banks opted for reduced savings and deposit rates.
ii.) Loan defaults hit Ksh403 billion amid Covid-19
Latest data from the Central Bank of Kenya show that non-performing loans (NPLs) rose to Ksh403.9 billion in October 2020, an increase from Ksh 349.9 billion in March 2020 when the first case of corona virus was reported in the country. The data further showed that this was the sharpest eight-month surge in the recent history. According to the CBK governor Patrick Njoroge, NPL increases were noted in the restaurants, hotels, real estate sectors, transport and communication, energy and water, and tourism, mainly due to disruptions of businesses in these sectors.
iii.) Current account deficit narrows on inflows boost
The central Bank of Kenya, on 30th November 2020 reported that Kenya’s current account deficit for the 12 months to October 2020 narrowed compared to 2019, attributed to the diaspora remittances amid a fall in the fuel import bill. According to the CBK, the current account deficit as a percentage of gross domestic product (GDP) stood at 4.9 per cent by the end of October 2020, compared to 5.3 per cent at the end of October 2019. The bank further reported that Imports have declined by 13 per cent in the January to October period relative to 2019, reflecting mainly on lower oil imports.
iv.) Kenya’s Year on Year Inflation hits a 6-month high of 5.46 In November 2020
The Kenya National Bureau of Statistics on Monday, 30th November 2020 reported that the Kenya’s year-on-year inflation in November 2020 increased to 5.46 percent compared to 4.84 percent in October 2020 and 5.33 percent in May 2020. The statistics agency further stated that on a monthly basis, the rate stood at 1.19% in November 2020, compared with 0.95% in October 2020.
CONSTRUCTION INDUSTRY HIGHLIGHTS
i.) State plans to build 12,500 classes with affordable materials
On 30th November 2020, the inter-ministerial committee between the Ministry of Education and the Ministry of Housing, which was formed by President Uhuru Kenyatta on 12th November 2020, issued a new set of school building guidelines infrastructure proposing to build 12,500 classes with affordable materials. According to the committee’s proposal, the low-cost classrooms will be built with low-cost, durable, and modern technologies suited to the country’s different geographies, saving up to 20 percent on construction costs. Materials to be used for the project include interlocking bricks, hollow bricks, and prefab techniques like expanded polystyrene panels (EPS).
ii.) KeNHA sued for the plan to demolish property in Ruaka
About 60 landlords with properties in the Ruaka – Ndenderu section moved to court on 1st December 2020 to stop the construction of the Gitaru – Ruaka highway, which will lead to the demolition of their properties without proper procedures. The property owners claimed that Kenya National Highway Authority (KeNHA) had brought up a new map, which condemned properties initially cleared to be out of the road reserves. KeNHA, on the other hand, claimed that that the land property along the highway was gazetted in 1970 following a purchase by the government.
iii.) Mizizi Africa to develop housing units in Ruiru in 10 months
Real Estate developer Mizizi Africa Homes Limited expects to complete and hand over several housing projects on Kenyatta Road, Ruiru, within the next 10 months. According to the company’s managing director and chief executive officer George Mburu, the company has embarked on several construction projects, including the Heritage Phase one, which is currently at 80 percent completion, and Peacock Phase 1, which is currently at 40 percent completion. The company is anticipating to complete the construction and hand over the two projects in January 2021 and April 2021, with Peacock phase 2 anticipated to be completed by September 2021.
iv.) President Uhuru Kenyatta commissions the Construction of G47 Ugatuzi Tower.
President Uhuru Kenyatta on Friday, 4th December 2020, commissioned the construction of the 50-storey G47 Ugatuzi Tower, which will be erected in Nairobi’s Hurlingham area. The Ksh5 billion skyscraper, which is estimated to be the Africa continent’s tallest building, will be constructed through a partnership between the Council of Governors and the County Pension Fund (CPF).
COMMERCIAL REAL ESTATE HIGHLIGHTS
i.) Pangani low-cost houses first tenants to move in February 2021
According to Nairobi County Lands, Housing and Urban Renewal Executive Charles Kerich, about 160 tenants will in February 2021 move into the first completed housing units at Pangani Estate, Nairobi. The tenants will be allocated the first block of 160 units which will be handed over in February 2021, making the tenants to become the first owners of the ongoing Sh5 billion Pangani Estate renewal project. The low-cost housing project, consist of eight blocks made up of 1,562 affordable units going for Ksh1 million for a one-bedroom unit, Sh2 million for a two-bedroomed unit, and Sh3 million for the three-bedroomed ones with payments staggered into installments after the first deposit of Sh500,000.
ii.) Hotels continue to record a persistently low bed occupancy in Q3, 2020
According to the Central Bank of Kenya (CBK), the hospitality sector has continued to record a persistently low bed occupancy in quarter three of 2020, despite the gradual reopening of the economy in July 2021, dealing a blow to the hospitality sector. According to the CBK, hotels bed occupancy in Nairobi stood at 17 per cent while the rest of the country stood at 30 per cent as of November 2020. The bank attributed the low occupancy rate to cautious revelers and holidaymakers who have kept off hotels and restaurants as well as tourism sites amid the second wave of coronavirus infections in October 2020.
iii.) 488 affordable houses in Ngara floated for sale to the public
The government, on 29th November 2020, started allocating the first batch of 488 affordable housing units at its Ngara, Park Road low-cost housing project in Nairobi. According to the Principal Secretary for Housing and Urban Development Charles Hinga, the sale of the affordable housing units in Ngara, which is going for Ksh1 million for one-bedroom, Ksh2 million for two-bedrooms and Ksh3 Million for three-bedroom, will close by 6th December 2020. The Principal Secretary further said that 822 of the housing units would be floated to the public at fixed prices, with the remaining 548 reserved for civil servants on a 60 to 40 percent criteria.
iv.) KRA records a fall in property taxes
Treasury data released on 3rd December 2020, showed that property taxes contracted by Ksh213 million in the first quarter of 2020/21 financial year (July 2020 – September 2020), signaling a depressed property market. According to the statistics, the Kenya Revenue Authority (KRA) collected Ksh3.53 billion from property transactions in the July – September – 2020 period, which was a 5.68 percent drop compared to Ksh3.75 billion collected in the corresponding period in 2019.
C.) KENYA REAL ESTATE TRENDS
i.) High-end property resilient despite market challenges
Nairobi High-end property suburbs showed resilience despite the continued challenges in the property market attributed to the Covid-19. The Hass Property price index for the third quarter of 2020, which was released on 27th November 2020, shows that high-end suburbs, which are predominantly characterized by detached houses, bucked the trend. The resilience in prices was attributed to the fact that most buyers of high-end houses were looking for properties that offer consistent or stable returns regardless of the state of the overall property market.
Muthaiga suburb led this trend by posting a 1.4 percent price increase, becoming the best performing suburb over the 3rd quarter of 2020. Loresho, Runda, and other high-end suburbs, also displayed resilience with mild increases of 0.9 and 0.7 percent increases, respectively.
ii.) Construction Approvals in Nairobi reduce by 55 percent
The Kenya National Bureau of Statistics (KNBS) data, released on 18th November 2020, shows that the value of construction approvals dipped to Sh120.78 billion in the nine months to September 2020, compared to Sh176.5 billion over a similar period of 2019. The value of residential approvals fell by Sh30.5 billion in the nine months to September 2020 from Sh114.6 billion in 2019, while that of commercial segments fell from Sh61.9 billion in 2019 to Sh36.7 billion in 2020. The dip in construction approval was attributed to a dip in the application for approvals attributed to the Covid-19 pandemic.
Furthermore, according to a report by the Architectural Association of Kenya (AAK), the number of building plans application approvals has been falling for the past three years. The third edition of the AAK construction report in quarter one of 2019 showed 1,140 development plans were approved in 2017, while in 2018, there were 1,167 approvals. In 2020, 955 plans were approved for the period between January 2020 and June 2020, with a value of Sh84 billion, translating to Sh333 million permit fees collected by the county. The residential sector had the highest approvals at 74.32 per cent of total approvals, public use class had 11.23 per cent, industrial class (8.63), commercial (5.93), and educational (0.21).
D.) GLOBAL REAL ESTATE TRENDS
i.) Mainland China, Hong Kong Office Markets Explore New Business Models amid Covid-19
China and Hong Kong are exploring an office space business model where tenants would pay membership fees instead of rent, as landlords are compelled to keep up with increasing vacancies and the rapid rise of the new digital economy. According to the model, which was initiated by the JLL, a monthly membership fee is calculated based on the workplace experience and specifications for each employee, who will also have access to shared amenities, such as dining, retail, social, and wellness spaces.
According to JLL, the rising vacancies and the growing supply of new buildings are putting pressure on building owners to retain existing tenancy and expand clientele. But with a membership ecosystem (which could also be adopted by Kenya Grade A office space), owners can make more efficient use of their assets and drive more income while providing a higher quality environment to occupiers at a potentially lower cost.
ii.) Mortgage Applications in the USA increase in Mid-November 2020
According to the Mortgage Bankers Associations of the United States latest Mortgage Applications Survey for the week ended 20th November 2020, U.S. Mortgage applications increased 3.9 percent week on week. Furthermore, the Market Composite Index, a measure of mortgage loan application volume, increased by 3.9 percent on a seasonally adjusted basis from week on week in November 2020.
According to the Mortgage Bankers Association, the weekly mortgage rate volatility increased week on week as markets responded to fiscal policy uncertainty and a resurgence in Covid-19 cases around the country. The decline in rates ignited borrower interest, with applications for both home purchases and refinancing increasing weekly and annually. According to Joel Kan, MBA’s Associate Vice President of Industry and Economic Forecasting in the United States, both the refinance index and the share of refinancing applications were at their highest levels since April 2020, as lower rates drew more conventional loan borrowers into the mortgage market. On the other hand, In Kenya, banks are the main providers of mortgage financing, but because of liquidity issues they are reluctant to expand their mortgage portfolio and hence low mortgage uptake.
E.) COMMON REAL ESTATE & DEVELOPMENT CHALLENGES, AND SOLUTIONS
Transitioning a Development Project from Construction to Occupational Property.
There are three phases of Development and Real Estate Projects, these being the Design Phase, the Construction Phase, and the Property Operational or Occupational phase. The challenge comes in transitioning the project from construction phase after completion, to operational and occupational phase, by adhering to transitional guidelines that manage investment risks, as well as allowing a smooth handover of the project from the building contractor to the manager or operator of the property.
- Occupational Certificate: The occupier or operator of the property should ensure that the occupational certificate has been issued by the relevant County Planning Department, after the project has been completed. This documentation is facilitated by the Project Architect.
- As-built drawings: The occupier or operator of the property should also ensure that he/she receive all the as-built drawings from design consultants, starting with Architect, the Structural Engineer, and Services Engineer.
- User Manual and Machine Maintenance Schedule Templates: The occupier or operator of the property is also advised to ask from the contractors for all User Manuals for machinery and equipment installed during the construction phase, as well as Maintenance Schedule Templates during the handover of the project at completion.
- Insurance: The occupier or operator of the property should also ensure that he/she places necessary insurance for the house, or development after completion, or a transition transfer or handover is made from Construction Insurance to the Property insurance.
- Security: In any project, the security during the construction phase is usually the responsibility of the Contractor. The occupier or operator of the property should ensure that he/she procure his/her own security arrangement during the handover process.
- Management Company: For major real estate project, it is recommended that the project after completion be handed over from the building contractor to a Property Management company to allow a smooth transition. The occupier or operator of the property should therefore hire a property or facility manager prior to handover.
THE CONSULTANT TO ENGAGE:
The Consultant to engage to help you in choosing the right and reputable contractor to execute your project is a Project Manager, with the help of a Property Manager.
F.) THIS WEEK ON FREQUENTLY ASKED QUESTIONS (FAQs), AND ANSWERS
What is a good Yield for Rental Property Investment in Kenya?
For anyone considering buying an investment property for rental income will surely be interested in what return the property will give, in other words its yield. Yield refers to the measurement of a future income on an investment. Yield is calculated by taking the annual rental income amount or expected annual rental; divide by the property’s purchase price or current market value; and multiply this figure by 100 to get the percentage. Yield can further be classified as Gross Yield, Net Yield, and All Risk Yield.
In Kenya, anything above 6% is generally considered a good rental yield for a Residential Property investment. In up-market area of Nairobi, however, it’s common for properties to generate yields as high 7 or 8%.
What’s classed as a good rental yield also differs between residential and commercial properties investments. So, what is a good rental yield for residential vs commercial property? A minimum of 6% indicates a smart investment for residential property. For commercial property, however, a rental return of up to 8% is a lot more common and favorable.
But why does commercial property generate good rental yield averages? Commercial Properties Tenant tend to reside within the same property for a long lease period, giving investors a secure period in which returns are assured and void periods dodged. Commercial properties also tend to come with a cheaper market price, especially since a lot of the properties are non-partitioned. Paired with high monthly rent, investors can end up with a strong yield commercial property investment.
G.) THIS WEEK ON DEVELOPMENT COSTS ANALYSIS – RUAKA AREA, KIAMBU COUNTY.
This week’s focus on Development Cost Analysis is for Ruaka Area in Kiambu County, this being another fast growing satellite towns in the Metropolitan area of Nairobi. The Development type in this area according to the land-use and county zoning regulations includes Apartment Blocks, 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.
H.) THIS WEEK ON REAL ESTATE PRICE ANALYSIS – RUAKA, KIAMBU COUNTY.
The Real Estate price analysis focus for this week is on land, sale, and rental prices for a 2 and 3 bedroom apartment in Ruaka – 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)
I.) CENTRAL BANK OF KENYA INTEREST RATE WATCH – (T-BILLS)
The money market remained liquid over the week ending 04th December 2020, supported by government payments, which offset tax receipts. The interbank rate, which is an indicator of liquidity levels in the banking sector, went up by 0.26 percentage points to 3.93 percent, indicating increased banking sector activities.
91 day T-bill increased by 0.13 from 6.730% previous week rate to 6.861%. CBK offered a total of Kshs4 billion, and bids amounted to Kshs 2.971 billion, of which 2.479 billion was accepted. The volume of bids received reduced week on week basis. 182 day T-bill increased by 0.14% from 7.193% previous week rate to 7.333%. CBK offered a total of Kshs. 10 billion, and bids amounted to Ksh 2.687 billion, of which Ksh 2.686 billion was accepted. The 364 day T-bill increased by 0.053% from 8.151% previous week rate to 8.204%. CBK offered a total of Kshs10 billion, and bids amounted to Ksh 5.258 billion, of which Ksh 4.727 billion was accepted.
J.) KENYA EQUITY MARKET INDICES
Investors trading confidence at the Nairobi Security Exchange (NSE) improved in the week ended 4th December 2020 as evidenced by increased trading activities. 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, increased by 3.36%, 1.61%, 2.16%, 113.56%, and 93.38%, respectively. The I-REIT stocks performed poorly than the equity majorly attributed to the depressed real estate market. The I-REIT turnover plummeted by 28.80% during the week.
K.) CURRENCY HIGHLIGHTS
The Kenya Shilling weakened against major international but strengthened against regional currencies during the week ending 3rd December 2020. The local currency plummeted to a historic low of Ksh111.062 per US dollar on 3rd December 2020, attributed to the increased demand for the greenback as the year approaches the end.
The usable foreign exchange reserves remained adequate at USD 7,951 million (4.88 months of import cover) as of 26th November 2020. That meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover and the East Africa Community (EAC) region’s convergence criteria of 4.5 months of import cover.
M.) FACTORS THAT WILL SHAPE THE REAL ESTATE AND OTHER MARKETS IN THE NEXT ONE WEEK.
i.) Kenya Covid-19 red light alarm by the US government
The US center for Disease control (CDC) on 03rd December 2020 classified Kenya among other East African countries as harboring very high levels of Covid-19. The country was classified in “Level Four” category, with the CDC strongly warning American citizens against travelling into the country, stating that travelling may increase their chances of getting and spreading Covid-19.
The Covid-19 alarm by the US government is expected to be a blow to the hospitality industry (Hotels, restaurants, country homes and serviced apartments), which majorly relies on tourists. The alarm is expected to inhibit global tourist arrival in to the country, reducing the bed occupancy rates to historic lows during the festive season.
ii.) Narrowing of the current account deficit
Latest Central Bank of Kenya data shows that the current account deficit (which is the balance between the country’s foreign exchange inflows and outflows) as a percentage of gross domestic product (GDP) declined by 2 percent to stand at 4.9 percent as of November 2020, compared to 5.0 percent as of October 2020 and 5.4 in October 2019.
The Narrowing current account deficit (More exports than Imports) is expected to stabilize the plummeting Kenya shilling against major international currencies, thereby reducing the cost of construction materials importation. Furthermore, the narrowing current account deficit is expected to lower the real estate valuation, as the shilling strengthens.
N.) UPCOMING REAL ESTATE EVENTS AND TRADE SHOWS IN THE COMING ONE WEEK.
i.) Webinar: Current Real Estate Trends During and Through Covid-19 – The webinar will give an overview of current real estate market conditions, market realities, and expectations.
Time: 11:00 AM
Event Organizer: https://www.acg.org/chicago/events/current-trends-during-and-through-covid-how-real-estate-might-change-going-forward
ii.) Webinar: Content Marketing in Real Estate – The webinar will outline current real estate content marketing trends and explore how Covid-19 has impacted how the real estate industry creates and disseminates content.
Time: 08:30AM- 4:00 PM
Event Organizer: https://www.ceros.com/educate/webinars/content-marketing-in-real-estate-trending-topics-themes/
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:
- Feasibility Studies and Market Research.
- Project Finance and Capital Raising.
- 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
- Office: Navigators, Kindaruma Road, Nairobi.
- Website: buildafrique.com
- Email: [email protected]
- Tel: +254 20 8058493 / Mobile: +254 722 474285
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.