Real estate records flat growth as counties delay approvals

Real estate sector growth remained largely flat in the third quarter of this year with rental yields in the commercial office and retail sectors dropping by 0.1 percent and 0.2 percent respectively.

A report by Cytonn Investments, itself a real estate player, shows that residential sector remained flat at 4.9 percent in the period under review.

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

Some of the devolved units that delay processing of documents include Nairobi, Kisumu and Kiambu, which are being targeted by most of the new real estate investors.

“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,” the report says in part.

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

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

“This is 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.

The Architectural Association of Kenya (AAK) and the Kenya Private Developers Association (KPDA) have raised a red flag on the issue.

“This is especially 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 documents processing, inadequate access to finance by both the developers and potential buyers has also slowed down the sector.

Worse, there is an 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.

Private sector credit growth was at 5.2 percent in June 2019 compared to an average of 14 percent in the five-year period of 2013 to 2018.

Cytonn Real Estate says that commercial office and retail sectors recorded rental yields of 7.7 percent and 8.0 percent respectively in the third quarter of this year, from 7.8 percent and 8.2 percent 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 percent and 5.8 percent respectively.