This archive report was first published on 21 June 2020.
June 21, 2020 - The COVID-19 pandemic has significantly impacted the real estate sector, leading to a major slowdown in the industry.
Urithi Housing Finance Co-operative Society has now urged the government to create a Ksh 50 billion revolving fund as part of a stimulus package to support low-cost housing development firms.
According to Urithi Chairman Samuel Maina, real estate is a capital-intensive sector that requires significant investment to recover from the lull caused by the virus.
“Capitalisation is very high unlike other sectors and one is required to inject a lot of money to buy land and develop with financing coming from lenders,” Maina said.
He noted that financial institutions are cautious to invest in real estate firms due to the crunch recorded, especially in the top stratum of the economy.
However, Maina pointed out that the bottom of the pyramid had remained secure in terms of demand, while the upper segment of the sector is almost crippled due to low uptake.
“Four years ago, there was huge uptake of high-end investment in houses in Kileleshwa and Westlands before the bubble burst in 2017,” he said.
Despite the challenges, demand for low-end housing remains high, with the country experiencing an annual deficit of 200,000 units and a backlog of more than one million houses.
On the mortgage sector, there are only 25,000 subscriptions out of a national population of 47 million.
Urithi has proposed the off-the-plan housing plan as a solution to plugging the gap in the low-cost segment, offering a snug entry point to home ownership.
“The Government should inject some seed capital in co-operatives to kick-start them and enable them meet the demands of their clients since they have the infrastructure and cut across different divides and geographically spread,” Maina said.
He explained that a revolving fund would mean that the funds invested would eventually flow back as interest or gains on participation and be made available for a new innovative project and investment.
According to Institute of Budget and Devolution director Elias Mbau, the property market will face tougher times as builders, buyers, and sellers lose cash due to the fallout from COVID-19.
He projected that the economy will need to grow at over six per cent for the housing sector to rebound, which is unlikely due to the virus.
