This archive report was first published on 10 October 2019.
Kenya's real estate sector has been struggling in the second half of the year, with the cumulative effect of oversupply and delayed construction permits holding back investor returns.
While the Kenya National Bureau of Statistics' quarter-two economic bulletin suggests an industry rebound, Cytonn Real Estate's quarter three sector review paints a different picture, revealing a continued industry slump.
Delays in the approval system have led to unnecessarily high development costs for private developers, according to Cytonn Real Estate's report.
Several counties, including Nairobi, Kiambu, Mombasa, and Kisumu, have suspended their planning committees, exacerbating delays in the authorization of real estate projects.
The Architectural Association of Kenya has written to the County Government of Nairobi, urging the convening of a technical committee to review the 538 pending applications.
Market performance remains characterized by a glut in retail and commercial offices, with a worsening credit crunch locking the sector in a tight spot.
However, rental returns on apartment units have remained favorable, growing by 5.2 percent in the quarter.
Despite this, purchase prices have fallen, with developers slashing prices to attract clients. The average cost of an apartment unit per square foot has slumped by Ksh.628 to Ksh.137,421.
The valuation of detached units has also kept pace with the slide, with growth dipping to 4.5 percent in the three months to September from 5.3 percent last year.
According to Cytonn Real Estate, the outlook for the residential market remains neutral, with the current financial environment expected to continue exerting pressure on residential prices.
The retail and commercial office sector, which held an oversupply glut of two and five million square feet respectively at the end of 2018, has continued to post flat growth, with declining occupancy levels taking a further hit.
Developers are offering rent-free grace periods to tenants in an attempt to attract and retain clients.
Real estate investment activities have slowed down in the period, with an annual decline in asking prices for land at 0.3 percent.
However, Nairobi's Central Business District 'dormitory towns' such as Ruiru and Limuru have registered the highest annual capital appreciation at 6.1 percent, marking their sustained attraction to both developers and residents.
