The high cost of real estate transactions in East Africa is inhibiting the growth of the sector, experts have warned.
The Managing Director for API Events, Mr Kfir Rusin has said that to restore real estate as a significant driver of sustainable growth, countries must reduce the input costs of building and deepen the available sources of funding.
“Especially, as we build the foundation for more affordable housing East Africa.” He said.
Taking its lead from Kenya’s President Uhuru Kenyatta’s affordable housing agenda the annual East Africa Property Investment (EAPI) set to be hosted in Nairobi next year hopes to point put some of the factors to consider when investing in real estate sector in East Africa.
In recognition of improving market sentiment, EAPI 2019 will focus on achieving six key objectives which relate to the summit’s affordability and investment agenda and thematic focus areas. These include: design and construction; land and urban planning; finance and capital; regulatory framework and infrastructure.
According to a recent report by Cytonn investments, it is expected that there would be a continued increase in activities in the real estate sector.
This will be driven by several factors, among them is the continued demand for quality office spaces (Grade A and B).
“Continued entry and expansion of international retailers, and positive demographics such as a high population growth rate of 2.6 per cent, 1.4 per cent point higher than global averages of 1.2 per cent,are also expected to drive up demand.” The report says adding that the relatively high urbanization rate in Kenya at 4.4 per cent compared to the global average of 2.1 per cent, necessitating the need for adequate housing in the urban areas.
According to a report by the Kenya Bankers association, house prices failed to sustain the 2.08 percent pace of market recovery experienced in the first quarter of 2018 despite recording an overall 1.76 percent increase during the second quarter.
House prices increased by 2.08 percent during the first quarter of 2018 compared to previous quarter’s 0.69 percent. This reflected a noticable reversal of the decline in the rate of price increase experienced since the fourth quarter of 2016.
“The rise in the house prices during the quarter is seen as a respite in the property market after nearly one and a half of depressed market conditions. The surge in the prices manifests optimism in the housing market. However, this ought to be viewed with caution since a one quarter surge would be inadequate to objectively judge the market recovery.” The report by the KBA noted.
The KBA Housing Price Index for the third quarter of 2018 revealed that house prices were generally stable although with signs of softening.
“House prices increased by 1.35 per cent for the quarter, representing a 0.41 per cent decline from the 1.76 per cent rise during the second quarter of 2018.” The recently released report noted.
As Rusin explains, “As an outcome based investment and transaction focussed conference; EAPI’S objectives are aligned to our theme and focus areas, and next year our primary objectives are to reduce the cost of construction; lower the cost of capital; unlock land for real estate development; create an enabling framework and environment for large scale property development and building the investment case for alternative asset classes and affordable housing.”
While affordable housing, and more importantly the funding and financing of these projects has generated a lot of interest and workshops in the Kenyan real estate and business market; the reality for Rusin is that EAPI’s international and regional investors and developers are results orientated and want opportunities to make deals and meet the decision makers.
“EAPI is a networking and business transaction platform, which attracts stakeholders from deep pools of capital and policy, who can interact with public sector policymakers and regulatory bodies. East Africa and Kenya has high growth potential and offers an attractive environment to do business, and we will see many new transactions announced, networking and deal making taking place next year across all sectors.”
While real estate market has been relatively quiet in Africa over the 12-18 months, as a result of macroeconomic pressures, oversupply and lack of effective product tailoring, Rusin argues that this cooling down period has allowed for market recalibration and more attractive pricing.
“In our global environment, capital is agnostic, and while Africa and Kenya’s property sector have been recalibrating, several investors, private and institutional are of the view that certain markets and asset classes provide attractive and stable yields. Next year is shaping up to be a defining year for Kenya’s real estate market, and we believe that EAPI will provide the transaction fulcrum for investors and developers across the real estate ecosystem,” said Rusin.
The emphasis on bringing the public and private sector together; is a key focus for EAPI and is one of the key differentials of the summit, as Rusin explains.
“The private sector is key to growth, but at this juncture, it’s critical that the public sector, industry bodies and the development finance institutions come together and drive transactions in the market and make the sector more attractive to local and international money.”