In early February 2018, the Kenyan government imposed a 90-day ban on timber harvesting, in public and community forests to help reduce logging effects on water shortage and subsequently, food security. The ban would also allow the government reassess and rationalize the forest sector in Kenya. The ban saw sawmills and construction sites halt their activities as commercial timber sellers increased costs inferable from the shortage in supply. By mid-April, the cost of timber had risen to Ksh 320 down from Ksh 150. The ban additionally saw timber and logs licenses suspended indefinitely across the nation leaving merchants with crisply cut logs lying in private estates and forests uncollected. In May 2018, the government issued a statement extending the ban to 6 months, with permits only given to private commercial timber sellers. As a result, the construction sector is now grappling with cost acceleration without many alternatives to go by. This is one of the hard-hitting effects of the logging ban on the construction sector.

In a bid to converse natural forests and scenic environments, regulation and control on logging are expected to be strict in the coming years. To developers, this means finding suitable alternatives with similar or fewer cost implications. And by doing so, construction projects will suffer fewer disruptions and costs will remain within predictable brackets. The following are solutions to real estate developers seeking to find alternatives to timber finishes and structures in real estate developments.

Cold-Formed Steel (CFS):

CFS offers a real competitive advantage to quickly overcome the current Kenyan logging ban and establish stability for Kenyan construction industry in the future.

CFS trusses are used in projects of various sizes and shapes around the world. Because of their unlimited application and superiority to wood-built trusses, they are used in a wide range of construction activities. CFS trusses are made from structural quality sheet steel that is formed into shapes by rolling the steel through a series of dies. To form the shapes, no heat is required hence the name cold-formed steel. They come in a variety of steel thickness and are available to meet structural and non-structural applications. Because CFS framing is lightweight, extremely strong, non-combustible, and relatively easy to install, it has dominated the market for the interior, non-loadbearing partition walls in commercial construction. With advanced technology such as panelized systems, the building community is using CFS for structural applications in mid-rise and multi-housing buildings.

As a construction material, CFS has numerous advantages. It does not shrink, or split, won’t absorb moisture, and it resists warping, fire and termites. As a uniformly manufactures product, the quality of CFS is very consistent. This consistency translates to less scrap to haul off because there is less waste, all of it recyclable. For its strength and ductility, it can be used in regions with high winds and with additional zinc coating, steel framing materials can protect against corrosion for decades.

On the job site, CFS is easy to handle and assemble. Because of its lightweight, it can be installed with fewer frames. And when ordered as factory-manufactured steel panels & trusses, it minimizes the need for skilled farmers which not only reduces the time required for framing but also the cost of labor. Furthermore, the panels contain pre-punched holes designed to accommodate rapid mechanical, electric, and plumbing installation after framing is complete. For green builders, CFS is highly recommendable as it contains more than 70 percent recycled steel which allows it to meet high sustainability requirements.

Bamboo:

As a building material, bamboo has a high compressive strength and low weight. It is mostly used as support for concrete, especially where it is found in abundance. Its utilization is achieved by a structural frame technique which is related to the same approach applied in usual timber frame design and construction. In the case of bamboo, floor, walls, and roofs are interconnected and further rely on the other for overall stability. Bamboo is limited in foundation use because when in contact with moisture laden surface, they decay fast. However, chemicals can be used to tackle this to some extent.

Due to its advantageous properties of bearing a heavy load, bamboo is considered as one of the highly endorsed materials for scaffolding even in tall structures. Although it has attracted controversy, bamboo is trendy as a flooring option and has played a vital role in the growth and transformation of rural enterprises.

Wood- Plastic composite:

Composite material combine wood with recycled plastic materials or other components. Compared to timber, composites are a more sustainable way to use trees. By using sawmills’ scraps and wood waste, mixing ground wood particles are created using heated thermoplastic resin. Wood composite is used in home and industrial construction to replace steel for joints and beams in building projects. Their most widespread use, however, is in outdoor deck flooring. These uses have various advantages over hardwood in that they require virtually no finishing, staining, maintenance, and are very durable. Wood composite is also popular for railing, fencing, benches, windows, and door frames, cladding and landscaping work.

The ability of wood composite to be tailored to specific uses, together with their strength properties makes them a viable solution to reducing the need for solid wood.

With the advent of technology in construction, there are numerous alternatives to traditional construction materials, most of which are cost efficient, lightweight and play a major role in eliminating time and cost overruns. In continuous efforts to converse the environment, and promote sustainable building, government control on logging is just the beginning of more restrictions that will hamper construction activities for imprudent developers.  It is important to stay ahead of such stalemates by being conversant with recommended construction materials alternatives.

KENYA REAL ESTATE MARKET TRENDS

Expensive road construction repairs attract the interest of the Africa Development Bank (AfDB)

In a plan that seeks to enhance the economy’s ability to function and grow, the government will spend Ksh 98.4 billion to rehabilitate and upgrade roads and interchanges across the Country. According to the 2018 Economic Survey conducted by the Kenya National Bureau of Statistics, these costs will push the total costs on roads to Ksh 201.7 billion in the 2017/18 fiscal year. The rising costs of construction and rehabilitation have become a significant burden to the government as it attempts to carry out repairs without raising taxes or taking out huge loans.

In response, one of the major financing partners for infrastructure projects, African Development Bank (AfDB), has called on the prohibition of roadside parking of heavy commercial vehicles in Kenya as they damage the shoulders of the roads.

The bank has called on KeNHA and NTSA to improve watch on roads to further prevent vandalism and misuse. Targeted culprits include individuals lighting fires on roads in protests and telecom firms that dig up roads for laying cables.

Reprieve for first time home buyers as government plans to scrap off stamp duty

For most home buyers, stamp duty piles on the financial pressure that come with a home purchase. Through the tax laws amendment bill tabled in parliament, the government plans to amend the stamp duty for first time home buyers.

Currently, property deal exempt from stamp duty include spousal property transfer, gifts to charitable organizations, and transfer of property in a will.

The move is intended to lessen the financial burden and make home ownership more affordable to young professionals. This provision is provided under the affordable housing scheme.

Removal of the tax means that home buyers will only have to meet outlay costs such as valuations, lawyers’ fees, and bank commitment fees.

Counterfeit flood the Kenyan market in the rise of real estate

The construction boom in Kenya has created a huge market for building materials. However, rogue traders are taking advantage of this demand to introduce counterfeit products in the market.

From non-certified steel pipes and low-quality fittings, the market is now flooded with fake, cheap goods that target buyers trying to save money by cutting the costs of building materials. According to the Revenue Authority, counterfeit products include steel, pipes and pipe fittings, valves, electric equipment, roofing materials, fasteners, and cement. Most of the materials are sourced from Japan, Korea, India, China, and Dubai. Currently, Kenya is among the largest products for counterfeited goods in Africa. Authorities have come out to caution stakeholders against the use of fake materials citing they are the leading cause of collapsing buildings that have killed innocent lives.

GLOBAL REAL ESTATE MARKET TRENDS

USA: The Buy vs. Rent equation tilts towards renting in costly markets.

Recent reports indicate that rising home prices, a greater demand for urban housing and the transfer to a highly clustered, knowledge-based economy from the old industrial economy have resulted to an inclination towards renting in the US housing market. With new tax laws that facilitate deductions and levels the playing field between renters and homeowners, the number of people who choose to rent over buy has increased. The new limit for mortgage interest deduction stands at US$750000 down from US$ 1 million while deductions of up to $10000 may be itemized for the total payment of state and local property taxes. Before, all state and local property taxes were deductible in the federal tax filing without limit.  With caps on itemized deductions for state and local property taxes, residents in high tax states are bearing an additional tax burden which has also forced more people to rent. Prior to the new tax laws, 44 percent of homes were worth enough for owners to itemize. However, the new act has decreased the number to 14 percent, thus lowering incentives on homeownership.

Prospective homeowners have found themselves locked out of the market as prices escalate. As family-sized homes and apartments average Ksh 15 million and double in costlier estates, many people are opting for renting options.

Asia: Opportunistic returns continues to fall amid market maturity

Returns on opportunistic investments have been on the decline in the Asia Pacific region as yields compress. The biggest challenge has been the continuing disconnect between risks that opportunistic investors are willing to accept and the returns they are looking to get. Where investors could expect yields of up to 20 percent, they have been lowered down to 15 percent. Markets such as Singapore and Hong Kong have grown in transparency thus increasing market knowledge among stakeholders.

Although real estate in major markets has been cited old despite a mature economy in the region, more investors are closing on the gap between Grade A and B products and despite market efficiencies, there is less to arbitrage to create a product more aligned with end users thus the continuous fall in returns.

Nairobi has been on a development path that has prompted individuals to learn more about the property market and areas they can capitalize. As the market matures, opportunistic investors are cashing in less and less.

THIS WEEK IN KENYA REAL ESTATE

This week’s market research focusses is on the sales prices for 2 and 3 bedroomed apartments in Nairobi’s Kileleshwa and Kilimani. Statistics in the tables below were derived from listings by property firms in Kenya, and analysis was conducted to provide an insight into the varying prices for investors looking to purchase either of the two apartment sizes.

Two Bedroom Apartments

Three Bedroom Apartments

KENYA INTEREST RATE MARKET WATCH

This week, the treasury bills were subscribed at 184.24% up from 165.65% the previous week. The 91 –Day, 182-Day and 364 –Day bills yielded 7.939%, 10.232%, and 11.111% rates respectively with the 364- Day bills outperforming the 92 and 182-day bills at 264.72% down from last week’s 198.43%

The 182-day bills recorded the highest variance (0.025) and were least subscribed at 117.63%

Out of the offered treasury bills, the total accepted bids were 37740880

KENYA’S EQUITIES MARKET WATCH

Total shares traded in the week decreased to 41 million down from 16 million last week. The NASI, the NSE-25, and the NSE-20 share index decreased by 2.1, 2.8, and 3.7 percent respectively.

Market capitalization further decreased by 1.705 percent down from 1.4635 percent decrease recorded last week while I-REIT Turnover recorded a 250% increase from last week’s 35125 to 123250 this week.

MARKET ANALYSIS SUMMARY

Last week, Longhorn Publishers dominated the gainers’ chart at 8.43 percent gain percent followed by Kenya Power & Lighting Company, at 4.48, Liberty Kenya Holdings at 4.44, and Pan Africa Insurance Holdings at 4.17 percent.

The top three losers of the week were ARM Cement, closing at Ksh 2.7 share price, Trans-Century Limited, and Car & General Kenya closing at Ksh 4.2 and 23.5 share prices.

CURRENCY HIGHLIGHTS

This week, the shilling weakened against the dollar at 0.6 percent and strengthened against the Sterling Pound at 0.2 percent.

In East Africa, the shilling performed well against the Tanzanian and Ugandan Shilling, closing at UGX 36.88 and TZSH 22.50 for a Kenyan shilling

This report is written by Buildafrique Consulting Group; a Kenya Real Estate Consultant and Development Solutions provider that offers End-to-End Financial, Development Management, and Investments Solutions in Real Estate, to allow Developer, Investors, and prospective Home Owners manage risks and realize value for their investments in a fast-evolving Real Estate market.

Contact Us today for Solutions to your Challenge in Real Estate Investments and Project Development:

• Email:     [email protected]
• Tel:           +254 722 474285    /  + 254 20 8058493
• Website: www.buildafrique.com