Mombasa 10 estates set for demolition after court ruling

PERIOD: August 8 to 14, 2016

12/08/2016 : The Business Daily, Pg. 11

12/08/2016 : The Daily Nation, Pg.11

• The high court has declined to suspend Mombasa County government’s sh200b housing project
• Justice Njoki Mwangi yesterday refused to grant orders restraining the county government from affecting the Urban Renewal and Redevelopment of old estates projects which seeks to demolish and rebuild 10 estates through a joint venture
• Ms Mwangi instead directed the county government to file a response to the application made by the Legal Advice Centre, Haki Yetu St. Patrick’s and Transparency International Kenya.
• “In the interest of justice and taking into account that this matter is of great public interest to Mombasa residents, I grant the respondents 21 days to file and serve their response, “said Ms. Mwangi
• The organisations also want a three judge bench to hear the case
• They claim there was no public participation in the project and that the county government failed to seek their views as key stakeholders in the design, conceptualization and planned implementation of the project.
• If the project is implemented as it is, the respondents will have failed to follow the due process by breaching the law and failing to invite the participation of county residents and estate tenants
• The plaintiffs have sued the conty government, the county secretary and executive committee member for land, planning and housing. They claim that the tenders have already been advertised for the project to commence in Khadija, Miritni, Greenfields, Changamwe, Likoni and Nyerere estates
• The second phase according to the petitioners, involves building 12,000 modern housing units in Tudor, mzima, Baxton, Tom Mboya, Kaa Chonjo and Kizingo estates
• The complainants state that the project has failed to comply with the law which requires that the procurement and award of contracts to a private party should be guided with the principles of transparency, free and fair competition
• They also added that the county governments failed to comply with the private public partnership act which requires it to submit a report of the planned project to the privatization commission for approval
• The application will be heard on September 15.

Moi university new campus breaks ground

11/08/2016 : The Daily Nation, Pg. 12

• Moi university will start construction of a sh1.39b campus in Gatundu South Constituency, named after Kenya’s first lady Mama Ngina, next week
• The campus will admit the first batch of 200 students next month
• Speaking during a site visit, Moi university Vice-Chancellor Richard Mibey said the campus will start with Bachelor’s degree in Education, business management, tourism and hospitality studies
• Other courses will be introduced later

Average mortgage increased by 10.6pc in 2014

11/08/2016 : The Daily Nation,DN2,Pg. 2

• The average mortgage rose to sh8.3m last year to keep pace with the rising property prices, further locking out a majority of Kenyans from acquiring bank-financed houses
• CBK data shows that this was 10.6pc increase above the average mortgage size of sh7.5m in 2014
• The total amount lent to home buyers increased by 23pc to sh203.3b, up from sh164b due to increased appetite for home ownership as opposed to rentals
• There were 24,458 mortgage loans in the market in December 2015, up from 22,013 in December 2014, an 11.1pc increase
• The average interest rate charged on the mortgages was 17.1pc last year up from 15.8 pc in 2014, with most of the loans on variable interest rates
• Most of the banks continue to finance below 90pc of the property

Nakuru housing boss on the spot over disposal of houses

11/08/2016 : The Daily Nation, DN2,Pg. 2

• The Nakuru county director of housing is on the spot over the disposal of 121 housing units to third parties
• Auditor-General Edward Ouko says the county director failed to provide records regarding the disposal and the amounts realized from the sale.
• In an audit report for the financial status for the national government, Mr. Ouko said housing inventory records maintained by the county director of housing show that 121 housing units of medium and high grades houses in Nakuru have changed ownership from the government to private hands.
• The county housing director was also accused of making payments for house repairs and renovation that were not undertaken
• Mr. Ouko said the property of the payment amounting to sh 6,141,840 and ownership of the 121 housing units under the county director of housing in nakuru could not be ascertained.

Low end housing hit by shortage of units for sale

11/08/2016 : The Daily Nation, DN2, Pg. 3

• The lower and residential housing market has been hit by a shortage of units for sale
• This is because developers prefer renting such houses to selling them, the Kenya Bankers Association (KBA) has said.
• While releasing the latest KBA housing price index, the association said the new units being put up are mainly targeting the mid segment of the market
• The index showed that the prices of homes based on concluded transactions across the country rose by an average of 17.4 pc in the second quarter of the year compared with 1.4pc in the previous quarter.
• In addition to the new units, there has been a gradual opening of new geographical areas for housing development in response to the physical infrastructure expansion, especially transport.

Urithi housing breaks ground for sh400m project in Juja

11/08/2016 : The Standard, Home & Away, Pg. 2

• Kiambu based company Urithi Housing Cooperative society has broken ground for a sh400m housing project that will be funded through banks and members contributions
• The projects, expected to be completed in eight months, will consist of two bedrooms and four bedroom master en-suite houses
• “The new venture was inspired by potential home owners whose preference is on the areas which are less populated but with good serenity and good proximity to the nearby social amenities,” said Urithi Housing Cooperative Society chairman Samuel Maina.
• He said the new investment is part of an effort to diversify their portfolio from land holdings to buildings.

Kakamega, construction of road resumes

08/08/2016 : The Standard, Pg. 29

• Construction works on Kisumu-Kakamega road has resumed after workers and China Covec Company reached an agreement
• The meeting to resolve the stalemate between the two factions had been slated for August 16
• However the company rushed to seal the deal with the workers to avoid further delays in completing the road on time
• Workers had been on a week-long strike over a salary dispute and allegations of harassment.
• Yesterday, over 200 employees reported to work
• The company gave into the workers’ demands and agreed to honor the collective bargaining agreement arrived at last year
• This means the workers will be awarded a 11 pc salary increment, and their January to July arrears be cleared by November
• The workers also complained of unfair sackings and being denied house allowances for the last four years. Read more

State to invest in sh2b modern railway engineering school

09/08/2016 : The Standard,Pg. 29

• The government has set aside sh2b for construction of a modern railway training school. The plan comes up as Kenya gears up for the launch of the sh327b SGR project next year
• This money will go towards infrastructure upgrade, and equipping workshops with modern training equipment that will be open to scholars by the next financial year
• Half of the sh2b will be used to refurbish the 60-year old railway training institute and to set up a new engineering school specializing in SGR technical operations
• The government has pledged to give half of the cash for the project, while the current SGR contractor will give the other half for the construction of the new engineering school
• The new-look railway training institute will be ready in the next 2-3 years.
• An Australian consultant has been contracted to do the audit and has so far submitted the its initial report
• In the next 12 months there will be a new curriculum. Read more

The establishment of the Leather Industrial Park (“LIP”) in Kinanie, Machakos County, reached a major milestone, with the establishment of Phase 1 of the 500-acre development. The development will create jobs for 35,000 people.

14/08/2016 : Real Estate Listings in Kenya, & Cytonn Weekly report no. 32

• The Kenyan Government announced that it was in the process of shortlisting the 10 applications it received from investors who want to set up tanneries within the 500-acre Leather Industry Park (“LIP”), which is to be located In Kinanie which is in the Athi River area of Machakos County, currently managed by the Export Promotions Zone Authority (“EPZA).
• The National Environmental Management Authority (NEMA) concerns, which had previously been raised over pollution of Athi River, have been addressed by the plans to have a common effluent treatment plant whereby all effluent will be released to Athi River after treatment. The actualization of the LIP will boost the real estate industry within Kinanie area and its vicinity as a result of:

1. Improved infrustructure, which will be developed in the Athi River area, especially with the development of the interior roads such as Kenol-Kangundo Road and Makutano-Kitui Road off Mombasa road
2. Influx of skilled workers and casual labourers to an approximate number of over 35,000 persons, who will directly be employed in the LIP,
3. Other than the LIP, Athi River presents an attractive residential destination for home-owners seeking a greater quality of life, while being able to commute to work in the Nairobi Central Business District.

• Despite technology advancement, the Textile, Clothing, Leather and Footwear (TCLF) subsector still remains one of the most labour intensive industries. Seasonal demand for the finished products and high demand for cheap labour drives the high reliance on labour contractors.
• The implication of this is that the employees in the tanneries will be lower end income earners hence they will prefer to rent houses within the vicinity to keep on transport costs at a minimum and also due to lack of job security. Therefore, there is a great opportunity of provision of affordable rental houses, and a lack of this would result in mushrooming of slums around the area.

• In further news positively impacting infrustructure development, the Transport Cabinet Secretary announced the plans by Government to construct an elevated highway in Nairobi from the Jomo Kenyatta International Airport (JKIA) to Rironi in Limuru which is approximately 25km North West of Nairobi. The three-phased project seeks to easen traffic snarl up currently experienced along the busy highway, although this comes at a cost the the road users, which is a toll fee approximated to be between Kshs 500 to Kshs 1,000 per vehicle for those users who wish to evade heavy traffic. The cost of the project is approximated to be Kshs 140 bn, and commencement of the first phases pegged on funding from the World Bank and the African Development Bank.
• In addition to this highway, the Western Bypass, at design stage, will further open up neighbourhoods such as Kikuyu and its environs, which primarily have been utilized for agricultural purposes. We therefore anticipate escalation of property prices in the parts of Kiambu and Nairobi served by the highways resulting from improved accessibility to the CBD.
• Currently the land prices in Kikuyu average at Kshs 50 mn per acre, and this varies depending on the lands proximity to the Southern Bypass and Nakuru-Nairobi Highway. Monthly rent for 2-bedroom apartments is approximately Kshs 33,000, while that of a 3-bedroom unit is approximately is Kshs 45,000. The average price for 2 and 3-bedroom units are Kshs 6.6 mn and 8.3 mn, respectively. The average price appreciation rate for apartments in the area is 14.84% p.a. and a rental yield of 6.34%, hence an investor can realise a total return of 21.18%

Real Estate Listings in Kenya

Listed real estate investment stocks in Kenya have so far delivered a disastrous track record, subscriptions have been low and price performance post issuance has been significantly negative. Yet, real estate remains a very attractive sector driven by demand outstripping supply in the low to mid income segment.

1. The Stanlib Fahari I-REIT achieved only 29% subscription, and is now trading at Kshs 16.35, 18.25% below its issuance price of Kshs 20. Additionally, the REIT has recently applied for regulatory extension to meet reporting obligations
2. Home Afrika went public in 2013 at Kshs 12.0 per share and is now trading at Kshs 1.25, which is 89.6% below its issuance price, and,
3. The Fusion D-REIT offering has been extended twice indicating failure to raise required amounts. There is little clarity on its closure which was scheduled for 4th August.

A vibrant real estate capital market is essential in two key respects:

1. First, an enormous amount of funding is required for the reduction of the housing deficit. The traditional sources of real estate funding, such as bank debt and private equity, are not sufficient to meet the financing demands required by real estate. A vibrant real estate capital market is essential to addressing the housing deficit.
2. Secondly, is the need for real estate-backed investment returns; Listed real estate investments are crucial to diversifying and fortifying investment portfolios, especially long-term portfolios such as pension funds. Real estate is a good supplement to volatile stocks and lower yielding bonds. For individual investors, they get both the benefits of high and stable yields, but with prospects of long-term capital appreciation. The REIT Market Cap to GDP for Kenya compared to other countries shows significant opportunity for REITs, which is currently 0.06% of GDP in Kenya compared to 6.9% in South Africa, indicating room for growth for Real Estate listings in the capital market hence making real estate an investible security.

So, if there is money interested in real estate opportunities and there is real estate in need of money, why are we having difficulty gaining momentum in real estate listed investments and what can we do?

1. REITs are a new product and may require initially an industry initiative or a government sponsorship. Rather than each player trying to launch their own REIT, we should find a few strong real estate and investment players to collaborate on a club deal that has broad support with the goal of not just economic viability but also proofing the REIT concept to the market so that there is a success story. So far, all the real estate market listings (Home Africa, Pahari I-REIT and Fusion D-REITs) have not been successful, and this makes it extremely difficult for future offers. It is possible that the market for REITs could effectively have closed down for the foreseeable future,
2. Get broad institutional support before launching another real estate listing. In markets such as Japan, the main buyers of REIT stocks are financial institutions. We need to educate and bring on board the main institutional investors to commit to supporting the REIT before launching,
3. Bringing down the minimum amounts required for investments. The current amounts, for example, the minimum of Kshs. 5 million for the Fusion D-REIT is very high and locks out most investors,
4. Broad investor education in simple terms that investors can understand backed by demonstrable examples,
5. Providing some level of principal plus minimum return guarantees to the buyers to get them comfortable that issuers are convinced about their REIT,
6. Improved corporate governance around issuance. The first REIT offering is already asking for more time for regulatory compliance, and
7. REITs to be more selective in the assets they put in the portfolio so that they are compelling and can deliver clearly superior returns.

Kenya has always been at the forefront of technology and financial innovation in the region. The launching of REITs in the local markets was a good step. The REIT agenda has certainly suffered some significant challenges. It is time for the industry players in financial services, real estate and regulators to review the initiative and give it new impetus. Failure to rejuvenate the REIT market would be very negative to the market.  Read more