Real estate sector performance dropped, report reveals

Thursday October 10 2019

Amara Ridge, an exclusive private gated housing project in Karen developed by Cytonn Real Estate. PHOTO | FRANCIS MUREITHI | NATION MEDIA GROUP


The real estate sector performance slumped in the third quarter of this year with rental yields in the commercial office and retail sectors dropping by 0.1 per cent and 0.2 per cent respectively.

According to an investment firm Cytonn investments, residential sector remained flat at 4.9 per cent during the same period under review.

This slump in the multimillion-shilling investment segment has been attributed to delay in the processing of construction permits by some of the county governments.


Some of the counties notorious for delaying the processing of documents include Nairobi, Kisumu and Kiambu.

 “The delays have mainly been as a result of the e-permit system downtime, inadequate staffing and suspension of planning committees of the Nairobi, Kisumu, Kiambu and Mombasa county governments,” said part of the report.


Currently, construction permits in Kenya can take as long as two years and this has greatly affected Kenya’s rank in the global Ease of Doing Business Index by the World Bank.

By the end of 2018, Kenya’s rank dropped from 128 to 124 in the previous year in terms of ease of obtaining construction permits.

“This largely due to lack of improvements on the system, and the situation has only worsened in 2019 and thus we expect Kenya’s rank in 2019 to drop further,” added the report.

Industry players such as the Architectural Association of Kenya (AAK) and the Kenya Private Developers Association (KPDA) have called for an immediate resolution of the matter.


“This is critical as the government attempts to deliver the affordable housing initiative through public-private partnerships. Delays in approval system leads to unnecessarily high development costs for private developers,” states Cytonn report

Besides the delay in processing the documents, another factor that has slowed down the sector is inadequate access to finance by developers and potential buyers.

The sector is also constrained by oversupply in the commercial office and retail sectors with a surplus of 5.2 million square feet and 2.0 million square feet respectively as at 2018.

Another challenge facing the sector include private sector credit growth coming in at 5.2 per cent in June 2019 compared to an average of 14 per cent recorded in the five-year period of 2013 to 2018.


Cytonn Real Estate, the development affiliate of Cytonn Investments in its latest report says that commercial office and retail sectors recorded rental yields of 7.7 per cent and 8.0 percent respectively in the third quarter of this year, from 7.8 per cent and 8.2 per cent respectively, in first half of this year.

In the residential sector, Ruiru and Kilimani areas in Nairobi ranked best in terms of rental yields recording 6.1 per cent and 5.8 per cent respectively.

Cytonn Real Estate handed over the first phase of its Ruaka project, The Alma after full uptake of the 113 units which were selling at between Sh6.3 million and Sh12.9 million.

Nairobi County government commenced works on the Pangani Regeneration Project, one of the seven flagship projects earmarked as part of the Kenyan government’s affordable housing initiative.


Other multimillion housing projects undertaken in the third quarter include the construction of the 160 units River Bank Apartments Project by Centum Real Estate along Limuru Road.

Chinese developers Erdemann Properties launched phase three of their Greatwall Gardens Project in Athi River while Safaricom Investment Cooperative unveiled its gated community development dubbed “The Zaria Village” in Kiambu County.

The government’s aim of improving the mortgage market also took shape as the central Bank of Kenya finally gazetted the Mortgage Refinancing Companies regulations. These regulations are critical for the commencement of operations of the Kenya Mortgage Refinancing Company.