Topical feature: The growing traction for Construction Procurement through Construction Labour Contract in Kenya, and Risks Management guidelines, & Weekly #29/2020

A look at the growing traction for Construction Procurement through Construction Labour Contract in Kenya, and Risks Management guidelines for Investors in Kenya Real Estate Market.

There are many procurement methods in Kenya construction and development process; notable being the Traditional General Contracting, Management Contracting, Design and Build Contracting, and lately being Labour Only Contracting method. The procurement of construction works through labour contract system is gaining traction among investors in the construction industry, who make approximately 20% savings by procuring materials themselves. Labour contracts are an essential aspect of the construction industry workforce, with developers’ portioning only this part of the workload and budget to contractors to provide the needed labour services. Developers usually procure the materials themselves, leaving the contractor to provide only the labour and associated management. In this contracting procurement method, the overheads of a contractor is reduced, and hence the cost of construction of a project is reduced. However, the labour contract calls for the time commitment, energy, and diplomacy on the client’s side for the objective of the project to be fully achieved. The method is also time consuming and prone to a lot of risks compared to the general traditional procurement method, whereby you contract the whole or entire works to a General Building Contractor.

Quantity Surveyors in Kenya and Construction Contract AdministrationFor risks management, and while procuring construction works through labour contracts, the objective of a project needs to be clearly defined, and the project preparation needs to be thorough in terms of both overall concepts and practical details.

The procurement of construction works through labour contracts consists of general guidelines that include a description of duties, the duration of the agreement, the type of payment that will be made, and the risks the contractor undertaking the project will undertake or manage. The following labour contract guidelines need to be observed while procuring construction works for risk management.

Obligations

Typically, the first information on a labour contract details are the duties expected to be met by the contractor. All obligations from both parties (The client and the contractor) must be described in great detail, in a language everyone involved can understand. In this case, the Client is responsible for procuring and delivery of materials on site and on time stipulated in the procurement schedule. The Contractor on the other hand is responsible for labour and management procurement of the work, as well as all quality control related to the project delivery. Obligations related to provision of tools, equipment, and scaffolding should also be well stipulated in the contract for avoidance of doubt, as well as provisions of preliminaries project undertaking related to water, lighting and power, and security for the site.

Project duration

Labour contracts must specify the duration in which a project is expected to be completed. This can be a specific date, or even time, agreed upon by the client and the contractor before signing the contract. In the case of more than one project, the labour contract should provide multiple time frames specific to each job.

Contract Sum

The amount of money that contractors will receive from the client is another vital aspect included in labour contracts. Additionally, labour contracts should indicate the day or intervals in which payment will be made (payment intervals, in the event of multiple payments.). Should advance payments be made to the contractor, or payments for expenses to suppliers, these should also be detailed in the labour contract.

Risks

The labour contract should make provision for potential risks, which the contractor might face in the course of his work and responsibility for the same made clear in the contract. Such risks often include potential injuries, damage to the property, or other risks associated with undertaking the construction works. Most contractors understand the risks, but this aspect of labour contracts need to be spelled out in great detail, as well as the requirement for the Developer or the Contractor to procure necessary insurance for the risks they are responsible for, in case of risk event.

Changes and Variations

Variations in building contracts are change in the scope of works, additions or omissions of works in the contract, or change in specification in the contract works. Provisions for variations should be allowed in labour contract to cater for any addition or omission in the labour scope of works for the contractor, for avoidance of disputes during the administration of the contract. Changes in workmanship that would cause a change in the technology of labour component or acquiring of more or different equipment for execution of works, should also be allowed under the variation clause.

Extension

Contract provisions governing any enforceable extension of time in the project should also be well articulated in the contract, to cover any occurrence that would require the Contractor to request for more time to complete the works. Events that would lead to extension of time should also be well defined in the contract, for risks management during contract administration.

Signatures

Once both parties have obtained and read over a labour contract and are satisfied by the provisions made, they must sign and date it to indicate they understand its terms. Both parties should then obtain a copy of the signed contract before actual work begins.

The identification and selection of appropriate contractor for the project is vital if the objective of the investor or the client is to be fulfilled, besides conducting a feasibility study to establish viability of the investment. Besides, projects vary as to the amount of contractor support that is given during and after the project. The administration of labour contracts in terms of payment procedures, terms and conditions of employment, and negotiations over fixed rates should also be given special attention as this determines the quality of the works that will be delivered. In conclusion, the procurement of construction works through labour contracts has gained traction amidst the Covid-19 crisis, as most developers aim at saving on resources following the slow down of the economy and reduced cash flows.

Buildafrique Consulting Group is a Quantity Surveyor in Kenya, and specialist in structuring Construction Works Contracts and Construction Cost Consultancy, together with Construction Contract Administration during the implementation of the Project.

 

 

B.) WEEKLY NEWS HIGHLIGHTS

 

 

              MAJOR ECONOMIC NEWS HIGHLIGHT.

 

i.) Fuel prices record the biggest rise in over 13 years

On 14th July 2020, fuel prices jumped by the biggest margin since Kenya started controlling fuel prices in 2007 on costly crude prices and a 13% increase in the Petroleum Development Levy, ending the era of cheap petrol that started in April, 2020. A litre of diesel will retail at Sh91.87 per litre representing a Sh17.30 increase from sh74.57, while a litre of Super Petrol will retail at sh100.48, which is an 11.38 shillings increase from Ksh 89.1. The Energy and Petroleum Regulatory Authority (EPRA) linked the expensive fuel to the recovery in crude oil prices, which increased the cost of imported refined fuel, and the increase in the petrol levy to Sh5.40 from Sh0.40, representing a 1,250 percent rise.

 

ii.) KRA starts tax return audit to nail tax cheats

The Kenya Revenue Authority (KRA), on 15th July 2020, started to review the annual income tax returns for unpaid duties for firms and workers. KRA said in a notice dated 15th July 2020 that its intelligence and enforcement unit was conducting an audit that involved matching firms’ returns with other databases such as the import records, cash in bank accounts, Kenya power data, and supplier dealing. The notice further indicated that the intelligence unit was as well investigating worker’s and businesses’ sources of income and their expenditure against their tax remittances.

 

 

 

iii.) Local flights resume after Covid-19 break

On 15th July 2020, Kenya Airways resumed local flights to key destinations of Kisumu, Mombasa, and Diani. That follows a directive from the president Uhuru Kenyatta who lifted travel restrictions on 6th July 2020. The Cabinet Secretary for Transport James Macharia said on 15th July 2020 that the resumption of local flights would help revive the varios economic sectors, which had been worst affected since the first case of Covid-19 was reported in the country in March 2020 and local flights suspended in 22nd March 2020.

 

 

iv.) SMEs to face harder times in the next six months.

A survey which was conducted between March 2020 and April 2020, by three research firms – SNDBX village Experts, Wylde International, and Amethyst Consulting showed that 54 percent of SMEs expect their business conditions to worsen in the next six months. The mobile survey, which was released on 18th July 2020, further showed that 26 percent of the SMEs interviewed anticipate that they would struggle to pay employees. Nineteen percent said that they expect losses in the next six months while another 19 percent said that they would find it difficult to meet loan obligations. On the other hand, only 18 percent of SMEs expect a positive change in their business finances in the coming six months.

 

 

 

 

 

             CONSTRUCTION INDUSTRY HIGHLIGHTS

 

 

i.) Construction of East Africa biggest cold storage mall to be developed in Tatu City

Cold Solution Kenya, a Kenyan firm, is planning on investing USD 70 million to construct a 15,000 square metre grade ‘A’ cold storage complex, which will be the largest cold chain facility in East Africa, to bolter food transportation. The project, which was announced on 13th July 2020 by the managing director, Mr. Jared Irving, is set to be placed in Tatu City special economic zone in Nairobi. The project will cater to multiple product rages, from fresh fruit and vegetables to pharmaceuticals and vaccines, meats and poultry, and frozen foods. That came amidst an estimation by the United Nations that over 40% of food in sub-Sahara Africa perishes before it reaches the consumer.

 

ii.) NMS Director stops construction in parklands, Nairobi

On Monday, 13th July 2020, the Nairobi Metropolitan Director Mohammed Badi stopped construction of private property along 3rd parklands avenue by a developer accused of grabbing public land. The director further said that construction of a public hospital would begin soon at the site, in which the developer had been building high rise apartments.

 

 

 

 

 

iii.) South Africas construction products retailer, Builders Superstore to expands in Kenya

Builder’s superstore, a South Africa’s construction products retailer and a Massbuild brand, is expanding into East Africa with its first store to be set up in Karen in August 2020, Nairobi Kenya. The store, which will cover almost 10000m2 at the cost of Sh500 million, will sell a range of home improvement and building materials products and services. The sore is also projected to create employment opportunities for around 400 individuals during the construction phase, and around 145 local staff once the store is trading.

 

 

 

iv.) Kenya seeks Joint venture partners to build 33, 000 houses.

The government, through the State Department for Housing and Urban Development on 14th July 2020, invited investors for joint venture partnerships in developing 33,336 low-cost housing units in a bid for the government to deliver anticipated 500,000 affordable units in 5 years. Most of the houses will be built at the Nairobi Railway City, where low-cost houses will be developed and sold to civil servants, pension schemes, and the public. The joint venture partners are further expected to build another 13,336 housing units in various towns across the country under the affordable housing programme.

 

 

         COMMERCIAL REAL ESTATE HIGHLIGHTS

 

 

i.) Real estate deals and Transactions stall as Covid-19 ravages the economy

A real estate market survey by Knight Frank, which was released on 13th July 2020, indicated that at least 40 percent of office leasing deals under negotiation at the onset of the Covid-19 pandemic face delays with 30 percent on hold. The survey, which was conducted between 01st June 2020 and 03rd July 2020, further indicated that the real estate market remained vulnerable to the economic effects of Covid-19 and that only 20 percent of signed leases for office space were proceeding as planned.

ii.) The USA ambassador to Kenya defends Del Monte land lease renewal

 The USA ambassador to Kenya, Kyle McCarter, came to the defense of Del Monte on the renewal of its 22,000 land lease. The company’s land lease expires in 2020, and renewal has been blocked by several parties that have been calling for part of the land to be ceded to the community. In his statement, while issuing food to locals in Murang’a County on 12th July 2020, the USA Ambassador said that Del Monte (an American Multinational,) has positively impacted the lives of the people living around it through the creation of local employment and construction of numerous schools in Kiambu and Murang’ a.

 

 

 

iii.) CS Tobiko stands still, says Ngong forest land repossession to go on

While appearing before the National assembly committee on Monday, 12th July 2020, the CS for Environment and Forestry Keriako Tobiko said that land in Ngong Forest was acquired fraudulently and that the land will be repossessed soon in line with the government policy. He further said that most of the entities and companies which were listed as initial beneficiaries could not be traced at the registrar of companies and that they were created to conceal the fraudulent transaction.

 

 

iv.)  50% of office landlords wary of uncertainty in the market

A new survey carried out between 19-04-2020 to 04-05-2020 by Knight Frank to obtain valuable market feedback from office landlords, tenants, and retail landlords showed that office landlords were wary of the general uncertainty in the market. The report indicated that the immediate stress in the office market was accentuated by the fact that only 20% of signed leases were proceeding as planned. The report, which was released on 13th July 2020, further indicated that 40% of office leasing deals, which were under negotiation at the onset of the pandemic, faced delays while 30% were on hold. However, 30% of the respondent indicated the current pandemic would not deter them from investing in commercial office spaces in the future, with 70% of those interviewed saying that they had already adopted a post-Covid-19 re-occupancy strategy to ensure business.

 

C.) KENYA REAL ESTATE TRENDS

 

i.) More city residents furnish their houses amid Covid-19

Furniture, finishes, and other home accessories sale have gone up in the three months preceding June in select high-end stores in Nairobi, as noted by most interior store owners in Nairobi. More people are making orders to furnish their houses even as effects of the coronavirus bite. Besides furniture and finishes inquiries on potted plants, artworks, and other décor items, both online and offline, have gone up as people seek to add a little spark to homes.

Most home owners are redesigning their homes to incorporate hygiene products such as the antibacterial and antimicrobial surfaces. That includes porcelain tiles, quartz, granite, solid-surfacing like Corian, or laminate countertops in kitchens and bathrooms; stainless steel for appliances; and using copper and krion for countertops and bathroom finishes.  Furthermore, spaces are being made bigger and more ventilated with large windows and doors to accommodate the need for social distancing.

Some of the other interior design remodification that property owners are embracing include:

Entry foyer, which serves as a transition area into the house to clean hands, remove and store away dirty clothes, shoes, or even shopping bags and visitors space for visitors.

 

ii.) Rent-to-own projects continue to attract a good pool of middle-income earners in Kenya

The concept of rent-to-own properties termed as “zero interest,” which was started a little over two years ago, has caught on in Kenya and continues to attract a good pool of middle-income earners. The concept is hinged on a rental-purchase model that allows a prospective home buyer to rent the house they intend to purchase for a certain period with the rental payments going towards clearing the house purchase price.

The idea of rent to own was conceptualized to allow potential homeowners to live in their houses as they pay for it over a period of time without taking up a mortgage. Amid Covid-19, rent to own investment continues to attract a lot of interest due to the increased need to own home at a lower cost amid a slowed economy. Furthermore, the idea is gaining traction among potential homeowners since more tenants are enabled to escape the rental cycle by participating in the equity model at no additional cost to their rent. A company such as Rama, in its previous projects, which include Jumeira (Parklands), Deira (Parklands), Euromax (South ‘C’), Marina (Parklands), and Gateway Park (Syokimau) said it had achieved an averaged sale of 90 percent, even before completion.

 

 

D.) GLOBAL REAL ESTATE TRENDS

 

 

i) Single-Family Homes gains traction in the United States amid the Covid-19 pandemic.

Apartment living in central, densely populated urban areas in the United States is losing its appeal as residents are subject to building restrictions and risk coming into contact with people infected by the coronavirus. According to polling data, one-third of Americans are relocating to less populated areas with single-family homes. For instance, in the past three months, moves from New York City to Connecticut (a less densely populated suburb within the state of New York) jumped 74% compared to the previous year, as New Yorkers flee the city. Moreover, according to Candace Adams, CEO and President of Berkshire Hathaway HomeServices New York, New England, and Westchester Properties, the number of single-family homes that were rented by June was off the charts. In Connecticut, rentals for over $5,000 a month for single-family houses rose by 33% year over year, and by 59% for rentals over $8,000 a month. On the West Coast, too, there was a surge in interest in single-family rentals, as Americans prefer a suburban lifestyle amid the Covid-19 crisis.

The desire for larger space and privacy further made single-family homes to gain more traction among homebuyers in the United States. According to Janet Feinberg Schindler, a broker with Sotheby’s International Realty in San Francisco, the increasing interest for the Single-family homes is expected to continue even in the post-Covid-19 pandemic era, given that this type of properties is a more flexible kind of living arrangement whose outdoor space can be enjoyed freely by family members. In Kenya, there has been a similar trend as most of the City population is moving out of town and congested apartments in search of better safe apartments in the suburbs.

 

ii) Transparency in Real estate market improves globally

According to JLL 2020 global transparency report, which was released in June 2020, real estate transparency across the globe is slowly improving as many countries are on the cusp of transparency. The improvement in real estate transparency around the globe is majorly attributed to regulatory improvements such as the UK’s proposed beneficial ownership register. Other regulatory improvements include the European Union’s Fifth Anti-money laundering directive, the increasing use of proptech in the USA, the implementation of the Real Estate Regulation and Development Act of 2016 by the Real Estate Regulatory Authority (RERA) in India, and the digitization of the land registry by the Kenyan government. Mainland China is also among the top improvers, supported by a burgeoning proptech sector, wider adoption of sustainability certification, and better coordination of land use planning.

However, JLL believes that countries around the world should take further initiatives, such as the use of proptech tools (which transcends national borders such as blockchain, brokerage apps, and open data) to enhance further the level of real estate market transparency in the global market. According to Jeremy Kelly, Director for Global Research in JLL, transparency is increasingly important for commercial real estate, where investors are continually allocating more capital. That is because the availability and quality of information- from prices to ownership, is crucial when trying to make investments, especially in new markets.

 

E.) COMMON REAL ESTATE & DEVELOPMENT CHALLENGES,  AND SOLUTIONS

 

Purchasing of the right development site for real estate investment.

 

YOUR CHALLENGE:

 

Purchase of the right development site for real estate investment is key in realizing returns on investment. Your challenge comes in establishing the right land property or site that allows a project to meets the investment objectives, as well as securing planning approvals for various property type based on zoning regulations of the area.

 

 

 

THE SOLUTIONS:

 

There are a number of checklists to observe while purchasing land property for real estate investment project, as below:

a) Zoning Regulations: You need to ascertain the land-use and zoning regulations in relations to allowable Plot Ratio (PR) and Ground Ratio (GR) by the local planning department, so as to purchase a development site that meets the investments objectives in terms of expected scope and size of the project. A limiting Plot Ratio (PR) would present a hindrance if the developer intends to have a project size or scope beyond the plot ratio (PR). In this case, the developer is advised to acquire a development site in a location whereby the plot ratio is interndem with proposed size or scope of the project.

 b) Market Feasibility: It is also advisable that the decision on the development site be informed by market feasibility and market research. The market research would inform on the demand and supply dynamics within a certain area, thereby helping in decision making of the investment based on market data.

c) Price and Other Costs: Price of the development site or land property is also a major consideration element, since the price influences the pricing of final product, whether rental or sale property. Other costs associated with ownership of the property such as land rent and rates should also be considered, since they normally affect the overall life cycle cost of the project and the investment value of the project or property.

d) Service Amenities: Services amenities related to infrastructure like road and sewer line should also be considered. Development site that is far away from local sewer would mean the developer investing more resources to either connect the sewer to the local authority sewer, or investing in other solutions like septic tank and biodigester. Proximity of the development to other service amenities like internet, power, and water should also be considered during the decision making process.

e) Physical Topography of the Land and Soil Type: It is also important to consider the physical topography of the land, to ensure that you do not buy land in an area prone to flooding, or swampy area. This can be done through topographical survey and well as soil tests, to establish the physical drainage landscape of the area, as well as establish the soil type which can influence the costs of foundation, in cases where you are building on various soil types like black cotton soil.

 

 

THE CONSULTANT TO ENGAGE:

 

The Consultant to engage for Market Research and Site Acquisition is a Real Estate Investment Consultant.

 

 

 

 

 

F.) THIS WEEK ON FREQUENTLY ASKED QUESTIONS (FAQs), AND ANSWERS

 

QUESTION:

How can I save on construction costs while developing my home, or a real estate investment project?

 

 

 

 

 

 

 

 

ANSWER:

 

With construction costs rising at an alarming rate due to effects of inflation, rising oil prices, and cost of doing business, investor and developer have become keen into looking at various ways that can bring saving of construction costs in project development and real estate investments.

The following are various ways and methodology that investors and developers can consider in reducing or making a saving in overall construction cost of a development project:

a) Market Survey and Materials Cost Engineering: – This is a process carried out after the design and project costing has been completed by the Architect and Quantity Surveyor. The process involves survey of market prices of various materials and finishes, and re-engineering the project specification to fit the Client budget. The exercise also helps with discovering new products in the market that falls within the set budget.

b) Use of Local Materials: – Transport costs have been seen to add up to between 40 % and 80% of the construction materials costs on some materials like sand and ballast. Using local materials contributes to substantial saving in cost of transport, as well as building labour costs through the savings realized by use of local workmanship for local building materials.

c) Bulk Purchase of Materials: – Bulk purchase is an exercise that first involves resource scheduling of construction materials for the entire projects, so as to allow one-off or bulk purchase for particular materials from a single supplier or purchase of materials at whole sale price. The savings are realized through economies of scale for bulk purchase, as well as negotiated discounts. Bulk purchase can also involve importation of bulk quantities of materials finishes from off-shore manufacturers at a much discounted price.

d) Use of pre-fabricated or ready-to-fix Materials: – The use of pre-fabricated or ready-to-fix Materials provides savings in labour costs, together with shortening the construction period which is also associated with more savings. Labour forms almost 22% of the costs of construction on normal construction processes; therefore using ready-to-fix or prefabricated materials may contributes to substantial savings through use of less labourers and shortening the period of construction.

e) Choice of Procurement Method: – With many procurement methods in the market, the choice of the same would either result in savings in the project or additional costs associated with the mode of procurement. Labour Contracts have been seen to contribute to savings of upto 20%, although the developer or investor is required to invest a substantial amount of his or her time into the management of the project. Design and Build procurement method has also been seen to contribute to savings in design costs, in which design costs are either omitted or factored in the entire design and build total costs but at a discount.

 

 

G.) THIS WEEK ON DEVELOPMENT COSTS ANALYSIS – KITISURU AREA, NAIROBI COUNTY

This week’s focus on Development Cost Analysis is for Kitisuru Area in Nairobi County, an upmarket area in the Metropolitan area of Nairobi. The Development type in this area according to the land-use and county zoning regulations includes 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.

 

 

H.) THIS WEEK ON REAL ESTATE PRICE ANALYSIS – KITISURU AREA, NAIROBI COUNTY.

The Real Estate price analysis focus for this week is on land, sale, and rental prices for a 4 and 5 bedroom house in Kitisuru- Nairobi County. The data were obtained through surveys, and analysis of asking prices on property listings in Nairobi.

 

i.) Sales price – Houses.

ii.) Rent price – 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 17th July 2020, supported by government payments, which offset tax receipts.  Commercial banks excess reserve stood at KSh 10.9 billion in relation to 4.25 percent statutory cash reserves requirement (CRR).

The appetite for government securities remained prevalent in the market during the week on account of high liquidity and increased investments from financial institutions as they shy away from aggressive lending. The increased appetite for government securities was also attributed to the unfavorable shift in the investment landscape owing to the Covid-19 pandemic, as investors were aggressively in search of assets that provide a reasonable risk-return balance

91 day T-bill declined by 0.263 from 6.274% previous week rate to 6.011%. CBK offered a total of Kshs4 billion, and bids amounted to Kshs29.877 billion, of which 29.876 was accepted. Volume on bids received increased week on week basis. 182 day T-bill declined by 0.235% from 6.759% previous week rate to 6.524%. CBK offered a total of Kshs10 billion, and bids amounted to Kshs10.781 billion, of which 9.780 was accepted.  The 364 day T-bill declined by 0.236% from 7.700% previous week rate to 7.464%. CBK offered a total of Kshs10 billion, and bids amounted to Kshs24.511 billion, of which 5.858 was accepted.

 

 

J.) KENYA EQUITY MARKET INDICES

The equity market remained relatively stable during the week ending 17th July 2020 due to increased consumer spending in the economy, which was attributed to local travel bans being lifted on 6th July 2002 by President Uhuru Kenyatta.

The NSE 25 share index, the NSE 20 share index, and the Equity turnover increased by 0.4%, 0.2%, and 26.33% percent, respectively. On the other hand, the NASI share index, Market capitalization, and the number of shares traded declined by 0.3%, 0.3%, and 9.54%, respectively. The I-REIT turnover and I-REIT deals increased by 69.71% and 16.66%, respectively.

 

K.) KENYA CAPITAL MARKET ANALYSIS

The volatility of the capital market remained relatively low during the week ending 17th July 2020. Activity in the banking and telecommunication sector remained relatively high throughout the week with Safaricom (10,761,300 shares), KCB bank (3,425,200), ABSA Group Holdings (2,941,800), and Equity Bank (2,023,500) being the top gainers during the week.

The week’s top gainers were Umeme (UMME), Williamson Tea Kenya (WTK), TPS East Africa (TPSE), KenGen (KEGN), and Flame Tree Group Holdings (FTGH), which had their shares increase by 8.00%, 6.82%, 6.77%, 6.07%, and 5.93%, respectively. On the other hand, the week’s top losers were TCL Kenya, CIC insurance, Longhorn Publishers (LKL), NCBA Group Holdings, and Nation Media Group (NMG) with their stocks losing by 6.75%, 3.29%, 2.66%, 2.51%, and 2.32%, respectively.

 

L.) CURRENCY HIGHLIGHTS

The shilling slumped to a record low against the dollar on 17th July 2020, exchanging at 107.40, on stronger demand for the greenback, pointing to a rise in the cost of importing goods into the country in the short term. The pressure on the shilling was also compounded by the disruption of key foreign exchange-earners such as tourism and diaspora remittances since mid-March when Kenya reported the first Covid-19 case. The shilling though remained relatively stable against the local currency exchanging at a mean of 21.58 and 34.33 against the Tanzanian and the Ugandan shilling, respectively.

In addition, the Central Bank data indicated that the country’s forex reserves remained adequate at 9,699 million (5.87 months of import cover) as of 17th July 2020. That meets the CBK statutory requirement to maintain at least four months of import cover and the 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.) Fuel Prices

On Tuesday, Fuel prices jumped by the biggest margin since Kenya started controlling fuel prices in 2010 due to the costly crude oil prices, which saw a thirteen percent increase in the Petroleum Development Levy. As a result, Motorists in Nairobi will have to pay Sh91.87 per litre of diesel from Sh74.57, representing a Sh17.30 increase, and Sh11.38 more for a litre of super petrol at Sh100.

In Kenya, the majority of the population relies on kerosene and gas for lighting and cooking, and diesel for transportation and power generation, making crude prices a key determinant of the rate of inflation. For instance, inflation declined to 4.59 percent in June from 5.33 percent in January, driven mainly by a drop in fuel prices. Likewise, inflation will increase in the short term as a result of the increases in fuel prices. 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. Furthermore, the knock-on effect that the high cost of fuel has on transport will be transferred to the price of goods and consequently impacting households’ budgets negatively. As a result, more money will be spent on food and transportation and less on household expenses such as rent. Businesses that depend on transportation of goods will also have to adjust their cash flows to cater the expected high cost of production amid a slowed economy attributed to the corona virus pandemic. As a result, the cost of essential items will go up, as transporters load the extra charges on traders. The hardest hit by this are likely to be the low-income earners who are already struggling to pay their rent.

ii.) Weakening of the shilling against the dollar

The shilling slumped to a record low against the dollar on 16th July 2020 on stronger demand for the greenback, pointing to a rise in the cost of importing goods into the country in the short term. The Central Bank of Kenya (CBK) quoted the shilling at 107.40 to the dollar, an all-time low, after four successive days of Weakening. The pressure on the shilling was also compounded by the disruption of key foreign exchange-earners such as tourism and diaspora remittances.

The weakening local unit raises the prospects of higher consumer bills for Kenya’s import-dependent economy. The country largely depends on imports for its consumer and capital goods, especially fuel and industrial raw materials. The effects of the weakening shilling are also likely to worsen the pain at the pump at a time when the energy regulator has raised fuel by the highest margin in 13 years. A weak shilling could also deny consumers’ cheaper electricity as the Energy and Petroleum Regulatory Authority (EPRA) had been raising the forex adjustment levy as the shilling weakens. The forex charge currently stands at Sh0.40 — the highest since July 2018 when it was at Sh1.22 — reflecting the impact of the weakening shilling on household budgets. The forex levy comprises expenses incurred in foreign currency by power generators such as KenGen, independent power producers as well as Kenya Power. Furthermore, Kenya’s overreliance on imports means the economy could wipe out any benefits the importers may get from a weaker shilling, leaving consumers in a worse position.

 

N.) UPCOMING REAL ESTATE EVENTS AND TRADE SHOWS IN THE COMING ONE WEEK.

i.) Webinar: Minimizing construction claims and disputes during the planning, Design, and Biding phases- The webinar presents the recommendations by project phase – planning, Design, and bidding.

Date: 28th July 2020

Time: 0100 PM EAT

Venue/Media: Online

Event Organizer: https://pioneereducator.com/upcoming-webinar/Minimizing-Construction-Claims

 

 

ii.) Webinar: Navigating Real Estate Valuation and Transaction- The webinar will assess the repercussions of COVID-19 on real estate valuation.

Date: 28th July 2020

Time: 7:00PM

Venue/Media: Online.

Event Organizer: https://www.grantthornton.com/events/real-estate/2020/07-28-navigating-real-estate-valuation-transactions.aspx

 

 

 

 

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. Project Management.
  4. Investment Design Appraisal.
  5. Quantity Surveying
  6. Construction Cost Consultancy
  7. Physical Planning and Planning Permissions
  8. Environmental Management and Impact Assessment
  9. Real Estate Development and Structured Investment Solutions
  10. Property Valuation
  11. Marketing and Property Sales Agency
  12. Property Management and Facility Management

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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.