For skyscrapers rising across Nairobi, extraordinary heights and an eye-catching design is part of the blueprint. Mark Properties recently completed Le’Mac commercial and residential building in the Westlands district of Nairobi. The 26- floor structure, labeled Nairobi’s most prestigious address, is the tallest residential building and features the first-ever skywalk in Kenya. Pinnacle Towers, which recently broke ground early this year is another structure that is expected to stand out in aesthetics as well as height. The 300m and 201m twin tower will have 67 and 45 floors respectively. In truth, unique skyscrapers can be a big draw for companies and office space that convey a sense of status. But for developers, creating prestigious form-driven structures may often mean giving up a good amount of space on the inside. As more and ever ambitious skyscrapers enter the construction phase in Nairobi, there is a choice to be made between the conflicting demands of aesthetics and leasing space.
Building in the essentials for tall buildings
While Africa is not known for its supertalls, Kenya, in particular, has a growing number. It hosts two of the five tallest buildings in Africa. The Prism-shaped Britam towers, with a height of 200m, has a total rentable space of 339000 square feet while UAP old Mutual Towers, at 163 m has a total rentable office space of 310000 square feet. For buildings of such heights, developers must make sufficient room for electrical and mechanical ducts for running electrical cables and water pipes. Due to the hundreds or thousands of people that may be working or living across dozens of floors, installing a significant number of elevators with advanced technologies proves essential to ferry the building’s population in a timely fashion. Such core requirements will most likely eat into a good amount of space, leaving about 70 percent of usable space, compared to more than 80 percent in lower rise buildings.
Meanwhile, tall buildings may require extra columns for structural support. According to architects, the efficiency ratio of some super tall buildings typically goes down to 60 percent depending on how irregular its shape is.
The reduced usable space on these ambitious super tall or uniquely designed projects are often accompanied by higher costs to meet safety standards, make the building more resilient to high winds or earthquakes and ensure structures are in line with the increased focus on energy efficiency. In Upperhill, the 5month old Britam Towers includes destination controlled lifts with sensors for wheelchairs, motion sensitive lighting systems, and stringent fire provisions including pressurized lobbies.
Higher rents for prestigious developments can go some way to offsetting overheads such as management costs and lost space. Average monthly office rental rates, for example, are between Ksh 116 – 125. According to the Business Daily, however, rents in tall buildings are in the average of Ksh 160- 250 per square feet.
Using space effectively
Urban sprawl is an issue facing many rapidly growing cities in Africa – especially with the number of people moving to urban areas only set to increase in the coming years. Dense, vertical city centers are an inevitable consequence as well as part of the solution.
Yet more needs to be done to utilize space in more effective ways. One straightforward way for developers to maximize their leasing efficiency is adhering to a square or rectangular floor plans. But that’s often not an option with unconventional design. Unoccupied space could also be used for energy efficiency measures from solar panels to channeling rainwater or environmental data collection.
Still, the rising focus on creativity in design shows no signs of abating anytime soon in Kenya.
While mature and established companies are more likely to prize efficiency, big local enterprises are likely to value having an office in a unique building as this is expected to raise the overall profile of the company. For that reason, they would be willing to pay more and make the most of smaller spaces to be in a tall building.
Yet, maximizing value from the subsequent vanity height, the distance between a skyscraper’s highest occupiable floor space and its architectural top as termed by the Council on Tall Buildings and Urban Habitat, remain a key question. Due to the growing lax in height restrictions, developers will have to put in measures that promote efficient use of these buildings even with ambitious designs. After all, skyscrapers are highly synonymous with the 21st Century Africa architectural landscape.
B.) WEEKLY NEWS HIGHLIGHTS
I. President Uhuru jumpstarts the low-cost housing project with Ksh 21 Billion
The Kenyan government has allocated Sh21 billion to jump-start his affordable housing dream. Among the first projects is the construction of 1,640 homes along Park Road in Nairobi, where the housing shortage is most severe.
Another project in Naivasha could start soon after the devolved government provides a site. The president hopes to leave a legacy built on enabling low- and middle-income households acquire homes, besides universal access to health care, jobs, and food security.
The President recently signed the Supplementary Appropriation Bill No. 2 of 2018 that listed revised spending plans, and whose other provisions were deep cuts for allocations for infrastructure and information technology (ICT). “The allocations in the new law reflect a significant reduction from what was allocated in the last financial year, which is in line with the ongoing austerity measures aimed at cutting down Government expenditure,” read a statement from State House. The president’s approval means the housing funds can be accessed immediately to jumpstart the housing agenda.
II. Banks and Pension schemes top as financing sources in real estate for the year 2017
New statistics indicate that banks and pension funds were the top sources of finance for real estate in the country for the year 2017, amid declining houses sales and rental prices. Commercial banks increased their real estate investments by Ksh 87.56 billion in the year, which was the highest allocation in a single year despite the September 2016 interest cap. That brought banks’ total loans in the sector to Ksh 371.65 billion.
Despite a 30.82 percent growth in financing from lenders last year, CBK notes that support for real estate has continued to grow outside the banking sector. SACCOs have focused on funding land purchases and construction of residential houses for their members in urban areas. Also, through investment units, local pension institutional funds like the National Social Security Fund, insurance companies, and pension funds, have invested substantial amounts in real estate, without resorting to bank loans.
Pension schemes were the second biggest financiers after banks, injecting Sh48.30 billion fresh funds in the sector to close 2017 with a portfolio of Sh226.72 billion. Funding by insurers rose by Sh2.8 billion to Sh76.04 billion largely on account of the 33-story Old Mutual Towers office block, while private equity firms cut their cash holding by Sh12.79 billion to Sh83.15 billion as reported by the Central Bank of Kenya.
III. Dangote Cement among top bidders for ARM Cement take over
Dangote Cement Owner, Aliko Dangote, revealed the Nigerian conglomerate’s interest in ARM in an interview with Bloomberg News, stating that the target company has operations in Tanzania, Kenya, and Rwanda. The description, according to major tabloids, fits ARM, which is the only cement manufacturer with operations in the three markets he named.
ARM portfolio in Kenya includes a clinker and cement grinding plant in Kaloleni and a cement grinding plant at Athi River. The company also manufactures, imports and sells cement in Rwanda through its wholly owned subsidiary, Kigali Cement Company. In Tanzania, ARM runs limestone, clinker and cement plants through its subsidiaries, Maweni Limestone Limited, and ARM Tanzania.
IV. Centum’s real estate portfolio lifts credit rating by South African Credit Agency
South Africa’s Global Credit Ratings (GCR) has affirmed Nairobi Securities Exchange (NSE)-listed Centum’s ability to timely meet financial obligations, backing the firm’s diversified portfolio across the sectors to support growth. GCR has retained the national scale ratings assigned to Centum of A (KE) for long-term borrowing and A1 (KE) for short-term debt.
The credit ratings, valid until July 2019 with a positive outlook, boost the firm’s ability to mobilize funds in Kenya at favorable interest rates. In its rating notes, GCR says that much of the value creation has largely been driven by (assets) growth and real estate portfolios, with two more large property ventures expected to contribute strongly to realized and fair value profits over the next few years. Nevertheless, the agency notes that the projects’ prospects are closely related to the performance in the property market, which is under some pressure.
Centum reported a 35.18 percent decline in fair value gains on its real estate investments in the financial year ended last March to Sh4.18 billion from Sh6.45 billion the year before. The decelerated capital appreciation was a reflection of Kenya’s real estate market which suffered slowed growth in sales prices last year. Its real estate ventures include flagship mixed-use Two Rivers Development Ltd (TRDL) in Nairobi which contributed the highest share to its net asset value (NAV) at 14.76 percent for the year ended March 2018, Pearl Marina in Uganda and Vipingo in Kilifi.
V. High real estate transparency gives mid-sized cities an edge
According to the newly released real estate market transparency report by JLL, not just the large, successful cities like London and Sydney
that boast highly transparent real estate markets, several mid-sized companies in mature economies are also leading the charge in ensuring their real estate markets are run in a clear, efficient, and transparent way.
Most of the cities are English speaking, with long histories of data collection and robust legal frameworks. These factor, JLL says, are what has attributed to the increased efficiency, limitation of risk and enhanced competitiveness.
They include Manchester, Birmingham, Edinburg, and Glasgow in the UK, San Diego, Denver and Portland in the US, and Brisbane in Australia. This report comes after Kenya was ranked 53rd out of 100 most transparent cities in the world.
C.) KENYA REAL ESTATE TRENDS
Hiked Land Prices and Poor Policies continue to hinder the government’s Housing Plan
The rapidly rising land prices across the country, which has for a while sparked fears that Kenya’s real estate sector could burst in the near future, is threatening the government’s Big 4 Agenda of constructing affordable housing units by the year 2022. While the increasing prices might spell profitability for the real estate investors, the market is becoming distorted by unreasonable and distorted pricing that could drive it beyond the reach of the middle-income segment.
According to Kenya’s solicitor general, increased land prices alongside the lack of a conclusive land use policy pose a great risk to the government’s agenda of putting up affordable housing. The widespread tradition of land speculation by some investors has been instigated by unclear guidelines as well as uncoordinated policy and legal frameworks. Hass Consult’s property index, which indicated that the third quarter of year registered a slow growth, believes that the slight drop in the land price is guided by cautionary approach many investors are waiting for gritty details of the State’s 500,000 planned units under the Big Four agenda.
The elevated land prices need to be reconsidered alongside the policies and guidelines governing the sector to protect investors and entrepreneurs buying land apart from cautioning those who purchase land for speculative purposed instead of buying for speculative goals. The topic was discussed in Nairobi during the 2018 International Construction Research Conference and Exhibition.
The announcement on the Housing Development Fund causes jitters.
According to new rules governing the newly introduced government Housing Development Fund, Kenyans contributing to the fund will have access to mortgage loans after five years of uninterrupted salary deductions. Contributors can use their savings as a deposit or security when negotiating for mortgages to buy affordable houses, while low-income buyers can use the savings to negotiate tenant purchase schemes that eventually leave them as owners.
The regulations are expected to formally establish the fund and pave the way for the levying of 1.5 percent of formal sector workers’ pay every month. The deductions were to begin at the end of October, but lack of supporting regulations meant that they had to be pushed forward. It, however, buys developers time to complete the units, most of which are still in the planning stage, while giving the Ministry of Housing enough time to build up the fund into a sizeable war chest capable of handling the huge demand for financing from home buyers.
The 1.5 percent levy on salaries is expected to generate about Sh57 billion a year, from about 2.5 million salaried Kenyans, with additional revenue expected to come from voluntary contributors, who will be putting in a minimum of Sh200 into the fund per month. We expect the housing plan to generate a lot of talk among involved stakeholders as the watch on the fund rises.
Controversies intensify over Kenya-Uganda SGR extension
Late October, Uganda, through its Finance minister, Matia Kasaiji, announced its plan to suspend the SGR venture and turn to its alternative to revamping its old meter-gauge railway network. According to the government, the SGR is taking too long to be completed as
the nation will have to wait for Kenya to reach the border point to begin construction.
The SGR construction in Kenya is currently on its second phase from Nairobi to Naivasha, from where it is expected to reach Kisumu, and then later to Malaba.
Ugandan government officials have blamed Kenya in what is termed as failure to commit to funding the completion of the railway project. Kenyan officials, however, claim that Uganda is using Kenya as a cover for their own problems, including compensation of affected landowners.
Similarly, claims have been brought forward that the project lacks the economic sense to Uganda as the country imports goods valued at USD 4 billion a year compared to its exports valued at USD 2 billion a year. To receive funding from China, the project has to make economic sense. However, Uganda notes that the project is sustainable and insists that it will generate enough revenues to pay the construction loan.
D.) GLOBAL REAL ESTATE TRENDS
Brexit wariness expected to continue the toll on the UK residential property market
UK house prices unexpectedly dropped at the fastest pace for almost six months in October as the number of homes for sale in 2018 fell to a decade low.
According to Britain’s biggest mortgage lender, the average price of a home in Britain dropped by 1.4 percent from the previous month to £225,995 compared to the same period a year ago where home prices remained 2.5 percent higher. The latest snapshot of the housing market with a little over 5 months before Britain leaves the EU suggests sluggish levels of demand for home buying amid the political uncertainty. According to economists, London house prices are falling for the first time since 2009.
Despite the drop, however, average house prices remain high in relation to household incomes, a factor that has led to many people being priced out of the market, thus limiting the rate of house price growth. Furthermore, the Bank of England has increased mortgage interest rates. The Chief UK economist, Samuel Tombs, argues that few households think that housing is a good investment at the moment. This is despite the announcement by British prime minister, that the government would lift a cap on the amount councils can borrow to build housing, potentially helping to increase the number of homes built by local authorities. The combination of rising mortgage rates and heightened economic uncertainty are predicted to be factors that will weigh on demand over the next few months, ensuring that year-on-year growth on house prices barely remain zero.
This reverberates a similar situation in Kenya where high-end residential market still dominates the market without buyers owing to the credit crunch. Similarly, developers continue to cite a lack of financial incentive to develop low-cost housing projects, and as a result, the largest proportion of buyers remain locked out of the market.
US house price increases slow in an adjustment to increased mortgage rates
Mortgage rates in the US jumped in October to the highest level in almost 8 years to an average rate of 4.94 percent, the highest level since February 2011. A year ago, the rate was 3.9 percent. The increase has been steady in the year. While 30-year fixed mortgages rates rose to 4.94 percent, 15-year fixed loan rate increased to 4.33 percent.
According to economists, high rates have kept many would-be buyers on the sidelines with the sales of existing homes falling for six straight months, and sales of newly-built homes have declined for four months. As a result, home price increases are slowing, particularly in higher-priced coastal cities.
In Kenya, similar observations have been made where increased access to credit has resulted in a slowdown in the increased of residential real estate.
E.) THIS WEEK PRICE ANALYSIS –WESTLANDS, NAIROBI
This week’s focus is on the land, sale, and rental prices for 2-3 bedroomed apartments) in Nairobi’s Westlands. The statistics below were acquired after conducting an analysis on the asking prices on online property listings in Nairobi.
Property prices for townhouses were skewed, with 4 bedroom units starting at a price range of Ksh 35 million to Ksh 50 million. 5 bedroom townhouses started at Ksh 58 million, while houses with larger land sizes started at Ksh 95 – 150 million. Below is a summary of apartment and house prices in Westlands.
Rental prices were slightly uniform with furnished apartments going for Ksh 350,000 for 3 bedroom units and Ksh 250,000 for 2 bedroom units.
1) Sales Price
2) Rental price
3) Land Prices (Residential /Commercial Plots)
Land prices were heavily dependent on location. Areas such as Brookside Drive recorded the highest price per acre of land for commercial development at Ksh 670 million. General Mathenge and Raphta road areas had the most uniform prices, followed by Waiyaki Way at an average of Ksh 385.5 million per acre.
F.) KENYA INTEREST RATE WATCH
Treasury bills were undersubscribed at 87.38 % down from 106.42% last week. The 91 –Day, 182-Day and 364 –Day bills yielded 7.349%, 8.302%, and 9.520% rates respectively.
The 364-Day bill performed at 167.01 % recording the highest subscription for the second week.
G.) KENYA EQUITY MARKET WATCH
The total shares traded during the week decreased by 6.6 percent from 20551300 shares last week. The NASI decreased by 1.24 while the NSE 20 share index increased by 1.73 percent.
Market capitalization also decreased by 0.665 percent
Similarly, total shares traded decreased by 6.6 percent while Equity turnover increased by 2.71 percent to 558 million.
H.) KENYA CAPITAL MARKET ANALYSIS SUMMARY
Unga Group led the gainer’s chart recording an 8.22 percent gain. Other top gainers of the week were the Williamson Tea Kenya Ltd, National Bank of Kenya, I & M, and Kenol Kobil Limited closing at Ksh 162, 5.7, 92.5, and 18.85 share prices.
Among the top losers of the week were Uchumi Ltd, Ever Ready East Africa, and KPLC at 8.33, 8, and 6.9 percent loss on their share prices.
I.) CURRENCY HIGHLIGHTS
Last week, the shilling weakened against the US Dollar, the Euro and the Sterling Pound at 0.118, 0.375, and 1.618 percent, and strengthened against the Asian currency, Chinese Yuan, at 0.02 percent.
In East Africa, the shilling had a mixed performance as it strengthened against the Tanzanian Shilling at 0.117 percent while weakening against the Ugandan shilling at 0.284 percent.
This report is written by Buildafrique Consulting Group; a multi-disciplinary consulting group of four (4) specialized companies, that offers End-to-End Real Estate and Development Solutions to Investors, Developers, and Prospective Home Owners in Kenya and the Regions.
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