Market outlook: What Covid-19 means for real estate sector

Kenya’s real estate market has always been a playground for risk takers, but now, more than ever, the market’s coffers are tucked away until the players meet on the other side of the coronavirus pandemic as the risks escalate.

Since the government announced the first case of Covid-19 about a month ago, business in certain sectors is almost coming to a standstill.

While most investors, especially those with properties to sell are counting losses, the players say that this unexpected twist might be the catharsis this industry has been yearning for, the falling action in a plot that had reached its climax in terms of property prices and an oversupply of units.

The ball might change courts from seller to buyer after the pandemic, a rare opportunity that most buyers have been hoping for. But just how has the market transitioned since March 13?

Harry Muchui, a realtor who deals in land and home sales at Sohar Properties, was in Nanyuki, in Laikipia County, when he heard that Kenya had its first case of Covid-19. “I was out in the field working when I heard the news,” he says.

Muchui knew that business was inevitably going to slow down, given that real estate buying and selling is often characterised by speculation.

OFFICES CLOSED

Buying a home or a piece of land is a huge risk, and often most tend to avoid buying when the risk is too high.

All everyone in the industry could hope for was enough time to prepare for the worst. Surprisingly, it took only four short days before the first blow hit the lands sector.

On march 17, the Ministry of Lands decided to close the Lands Registry and The Central Registries at Ardhi House in an effort to protect staff and to create room for consultation.

To Muchui and other real estate agencies, that spelt doom for land transactions. Land leasing, change of land user, issuance of title deeds, survey and all other critical paper work involved in transacting land were halted.

On the ground, Muchui felt the impact. “People are still interested in land prices and viewing, but no one is committing financially. Few people would place their money in an investment without paperwork,” he explains.

The lands registry was closed temporarily for 28 days, a timeline that is likely to extend depending on how the situation progresses.

But that was not the only blow for Muchui. Less than two weeks later, the second one hit home, in the form of closed borders.

On March 22, the government banned all international flights to stop imported cases of Covid-19.

CUTTING COST

To some that deal in property, that was not something to worry about; however, for agencies that had ventured out into the diaspora market, that was a major setback.

The diaspora market has been a lucrative one for Kenya’s realtors and real estate companies.

Kenyans in the diaspora send money home regularly, hoping their beloved kin will invest the money wisely on their behalf. Unfortunately, this is not always the case.

To solve this, real estate companies made it easier for the diaspora community to invest through them.

At the time when Kenya restricted flights into and out of the country, Muchui had two pending transactions.

“A couple in the US was interested in buying a home here while someone in Germany wanted to buy land,” he says.

Most buyers will only make payments, even partial ones, after they have viewed a property. As it is now, those two potential transactions are pending.

The larger economy, which is currently receiving an unprecedented beating from the pandemic, also affects the real estate industry greatly.

Money is barely trickling down to the average buyer; therefore, people are saving the little they have to survive; investing in property is the last thing on their mind.

Even Muchui, who had invested in a brick and mortar office to run his real estate business, had to close shop and move the business online to cut cost.

STAY HOME

That means loss of business for the real estate investor who was renting out the space to him.

“Things are uncertain for now, I’d rather invest the rent money into digital marketing for now and cut cost on all other aspects of the business,” he says.

Besides this, he has cut down the number of site visits he makes, during which he takes potential clients for viewing.

At the moment, he is only focusing on hot leads rather than all leads. Generally, business is slow on his end.

For Herine Achieng, a valuer, the banned flights into and out of the country and closed registries were least of her concern; however, when the president announced staying indoors as one of the measures to control the pandemic, Achieng sat up and took notice.

As a valuer, she is required to inspect properties and determine the current market value. It is a job that entails lots of leg work since she conducts site visits during the valuation process.

Staying home makes it impossible to visit properties, yet without proper valuation, both sellers and buyers may not be able to proceed with transactions.

Financial institutions are especially at a loss given that they need valuations to put properties on auction.

At Achieng’s place of work, they also offer other services related to the industry, and while most of them are on hold at the moment, it’s not all doom and gloom.

“Property management is more vibrant than ever,” points out Achieng, explaining that as commercial and residential property owners try to curb the virus’s spread among those renting or leasing their properties, they need more assistance in executing preventive measures.

SURVIVING ON DAILY WAGES

Besides, the matter of whether to pay or not to pay rent is still hot. Those managing properties like Achieng and her colleagues are the bridge between landlords and tenants.

“Tenants are approaching us with questions on whether they’ll get a waiver or rent reduction. We then talk to our clients, who are landlords, about these issues,” she explains.

If the landlords do not agree to reduce or waiver rent payments, property managers have to ensure tenants pay up as expected.

And as Achieng explains, many people are still able to pay rent but most of them are hoping to get a free pass.

Property management is, therefore, one of the busiest sectors in real estate at the moment. The construction sector has not been spared the pandemic’s wrath.

But on the bright side, things are slowing down gradually, rather than abruptly. Joseph Mututu, a casual labourer, says that he is still able to survive on the daily wages earned from jobs here and there.

In the past, bigger projects - especially in Nairobi - would provide more sustainable income, but now he has to scout for jobs in the outskirt areas where homes are being built of renovated.

The smaller projects are still ongoing since they do not require much, but the bigger ones are nowhere to be found.

“I had regular income from a long-running project, but the project had to stop. The owner told me that he was sparing his savings for survival, and would resume building when things get better,” says Mututu, who has been working as a casual labourer since 2007.

This crisis, he says, is the heaviest blow to the industry yet. Not even, he says, the 2007-2008 post-election violence affected the industry as much as it has now.

DROP IN PRICES

Mututu has three young children to provide for, the youngest one being eight months old.

If he were working for just his needs, he would forgo a meal or two daily to cut the cost of living, but that’s not possible with children.

He says that a mere week of a total lockdown would make it difficult for him and his family to survive, a fear shared by many other casual labourers.

Many of the friends he worked with on other construction sites have already moved to their rural homes to escape the tough Nairobi life.

Things are undeniably changing for the many people who had invested their time, money and careers in the property industry.

However, there is a silver lining. Muchui, the realtor, notes that the pandemic is a major game changer.

“At the moment, we’re going to suffer, but once this passes, there will be many sellers with stale properties, distress sales and a general oversupply. With everyone selling, the prices will have to drop, something that is already happening. It will be a buyer’s market,” he explains.

Muchui also points out that since the last election year, the market has experienced a stalemate between buyers and sellers.

The prices have continually skyrocketed while buyers hold on to their money, waiting for sellers to barge and drop the prices.

Subsequently, there has been a glut for years. The pandemic might just be the last straw that breaks the camel’s back, who in this case is the property seller.

BOOM YEAR

When, and if the prices go down, a window of opportunity will open for many buyers - Achieng advises anyone hoping to invest in real estate to take advantage of this rare opportunity.

Remember, 2022 is set to be an election year, and as Achieng notes, the minute campaigns peek, property transactions slow down; therefore, 2021 should be the boom year for most buyers.

A buyer’s market might not sound like music to the ears of a seller, but they too will benefit. Muchui says that a big percentage of the properties in his portfolio are distress sales.

Sellers are already struggling to sell, and if buyers gain control over the market, units will move faster. It is, therefore, a win-win-win for the entire market.

“Real estate transactions are driven by availability of properties, prices and money. These three aspects have to balance,” explains Muchui.

At the moment, properties are plentifully, the banks are lenient owing to the tough economic times and prices are already dropping as sellers struggle to move units.

So far, Muchui has seen sellers slashing prices by almost 50 per cent, an indicator that more price cuts are nigh. The pandemic seems to be a necessary evil.

Even the casual labourers like Mututu will gain if more buyers are able to buy property because that means more construction sites and more renovations.