Cement sales tumble in property glut


Cement sales tumble in property glut
Mombasa Cement. PHOTO/COURTESY:

In Summary

  • Cement production and consumption sunk to 4.7 million and 4.6 million metric tons respectively as developers adopt a cautious approach to the establishment of new properties.
  • Land plans approved by the Nairobi City Council have likewise fell by 17.6 percent in 10 months to October 2018 to Ksh. 169. 3 billion from Ksh. 205.5 billion over a similar review period in 2017.
  • The Affordable Housing Initiative by government could however provide respite to property developers as private investors eye the piece of cake to offset depressed yields from mainstream real estate developments.

The sale and production of cement has taken the heaviest battering from the ongoing glut in Kenya’s property market, this as developers adopt a cautious approach to the development of new properties to shield against the potential of depressed returns to investments.

According to market research conducted in the second half of 2018 by the Knight Frank Real Estate consultancy, cement production sunk to 4.71 metric tons in 10 months to October as with consumption backing a similar trend to decrease by 6 percent to 4.6 million metric tons from the 4.9 million metric tons consumed over a similar period in 2017.

The value of building plans approved in Nairobi County likewise fell to Ksh. 169.3 billion; a 17.6 percent drop from the Ksh. 205.5 billion approved valuation as at October 30, 2017.

“The decrease in cement production, consumption and the value of building plans approved is attributable to the current oversupply and lack of transactions, indicating caution among developers in undertaking new projects. Additionally, the interest rate cap has hindered many developments as commercial banks became increasingly cautious in lending to the private sector,” noted the market report.

Prime retail rents however stood unfazed against the ongoing glut to hold steady at about Ksh. 511 per square feet (sqft) per month as the adjustment to oversupply conditions continued.

Average occupancy rates for established malls averaged well above 90 percent while newly completed retail centers continued to record low occupancy rates of between 45 and 75 percent.

The real-estate segment saw an addition of 1.4 million sqft in the second half of 2018 to include the expansion of the Westgate Mall and the opening up of Signature Mall and the Waterfront in Karen.

A further 719,000 sqft of retail space remains in the pipeline in 2019 to include the expansion of Sarit Centre and the expansion of the ENA Hub in Nakuru.

Like retail, office asking prices stagnated in spite of an increased absorption of high-grade serviced spaces by both local and international firms. Residential asking prices and rents meanwhile sunk by 4.5 and 1.3 percent respectively with the sustained demand for high-end unit falling short of offsetting the plunge.

The expected affordable housing initiative by government whose implementation is underway could serve as respite to the depressed property prices and consumption of cement, this as developers jump onto the emerging opportunities from the state initiative as yields from mainstream developments stall.

Tatu City makes up some of the private sector stakeholders with sights on the affordable housing price having set aside 300 acres towards the construction of 10,000 units beginning May. The houses will be part of the government’s affordable housing scheme priced between Ksh. 1.5 and 5 million shillings.

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Story By Kepha Muiruri
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