ARM Cement retains strong rating after 40pc share sale

PERIOD: June 27 to July 3, 2016

27/06/2016 :The Business Daily, Pg.19

• Listed cement-maker ARM Cement credit rating has been retained at A1 by South African Global Credit Rating agency, following it ceding 40.6pc stake to UK development finance institution CDC.
• The rating agency downplayed the cement-maker’s loss of Sh2.8 billion in its appraisal which also classified ARM’s outlook as stable.
• Global Credit Rating agency(GCR),estimates ARM controls 18 per cent of the competitive cement industry up from 11 per cent five years ago, indicating the ambitious expansion plans are paying off in terms of sales.
• CDC injected Sh14 billion into ARM, of which Sh11 billion was set aside for settling debts while the remainder was for funding capital expenditure.
• Apart from cement the company is diversified in fertilizer business which recorded growth last year.
• With the completion of the Tanga plant (Tanzania) in 2014, ARM has secured clinker sufficiency and is now one of the lowest-cost producers in the region, enabling it to compete aggressively,” said GCR.
• Clinker is the main ingredient used in making cement. Manufacturers have been looking for ways of feeding their clinker demand in order to avoid importing as it inflates their production price. Read more

Mututho sucked into SGR supply deal row

28/06/2016 :The Daily Nation, Pg.22

• Residents of Narok County accuse the Transport Licensing Appeals Board Chairperson John Mututho of irregularly getting contract to supply building materials.
• The members claim that the China Communication Construction Company Ltd contracted Mr. Mututho’s firm to supply building materials for the construction.
• Mututho denied the allegations saying that he followed the right procedure to get the contract.

State sets aside Sh200m for building new bridge, Nakuru County

29/06/2016 : The Standard, Pg. 26

• The government will use sh200m to construct a new over bridge River Karati connecting Naivasha and kinangop.
• Officials from Kenya Rural Roads Authority (KERRA) have declared the current bridge unsafe after a section collapsed.
• The old bridge will also be repaired so as to reduce losses as many vehicles were being damaged everyday
• A bypass will be constructed near the road to facilitate construction of the new bridge.

New contractor for Kakamega Road that stalled for months

01/07/2016 : The Business Daily, Pg.11

• Construction work at Kakamega road is set to resume this month under a new contractor following the termination of Indian firm Vil Limited’s contract.
• The contractor failed to meet the March 31, 2015, work completion deadline.
• The new contractor is expected to complete the project within 24 months
• The project also involves building interchanges and pedestrian crossings as well as drainage systems and market loops.

Helios to set up real estate division

30/06/2016 : The Standard, Home & away, Pg.2

• Helios investment partners, Telkom Kenya’s new majority shareholder, is set to tap into the communication firm’s Sh13b prime property holdings by setting up a real estate division.
• According to Aldo Mareuse, the new chief executive, Telkom Kenya will appoint head of this newly created real estate unit.
• “The company has reorganized its structure into four business divisions: mobile, fixed, real estate business divisions will be named in due course,” said Mareuse.

CPF Financial Services planning development on Lang’ata road

30/06/2016 : The Daily Nation, DN2, Pg.2

• County workers’ pension fund manager CPF Financial Services is set to build a multi-billion mixed-use development on Lang’ata road, which will include 252 apartments
• The sh3b development will also have offices and shopping complex expected to host more than 50 outlets. The development will be on a 5 acre plot
• The project, located opposite historic Uhuru Gardens will be competed in December this year.

Low cost housing becomes new frontier for wealthy investors

30/06/2016 :The Daily Nation,DN2, Pg.3

• The low income housing becomes new frontier for wealthy real estate investors as the high-end market becomes saturated, Dyer & Blair Investment bank and realtors managers Mentor Management Limited (MML) say in new report.
• Kenya has an annual shortage of sh150000 housing units mainly in the lower end of the market, where developers have been wary of investing due to the high cost of finance
• Investors have for the past decade concentrated on the high-returns middle-upper to high-end income housing segments, which have been the driver of the real estate boom in the country.
• Dyer and MML, however say over the past one-and-a-half years, demand for high-end units—which has been driven in apart as expatriates—has slowed a number of foreign missions, companies and international organizations downsize and expatriate family members stay away due to security concerns.

Audit report reveals sh500m lost in SGR land compensation scheme

27/06/2016 : The Standard, pg.6

• Kenya Railways Corporation has paid out Sh12b of the estimated Sh30.2b set aside for acquiring over 4616 hectares for the new 609km Mombasa-Nairobi railway.
• Of this about 11,000 acres will be compulsorily acquired at a cost of Sh9B once the acquisition is completed.
• KRC is paying land owners from collections made through the rail development levy, which was introduced in 2013.
• The levy is charged at 1.5pc of imported goods and raises more than sh22b annually
• The national land commission has been leading the process of acquiring land.
• Some sh500m is said to have been lost in flawed land payouts.Read more

First half of 2016 characterized by increased institutional financing, as well as increased development activities, especially in the low to middle income residential and hospitality sectors. Regulations were also adjusted to be more developer friendly with the NCA and NEMA fees being scrapped.

03/07/2016 : Cytonn H1’2016 Market Review

1.Financing Activities

• The first half of the year saw increased financing being channeled into the real estate sector from both local and international players, attracted by the total returns in the sector. Examples of real estate financiers that invested in the sector in H1’2016 include:
  3. Islamic Development Corporation, who invested in Shelter Afrique to the tune of Kshs 3.4 bn in a mix of debt and equity.
  4. Actis closed the Actis Africa Real Estate Fund III, which was 25% oversubscribed, with the fund raising USD 500 mn
  5. Taaleri of Finland increased their financing towards Cytonn Real Estate to Kshs 2.5 bn, from Kshs 2.1 bn previously; the allocation of Kshs 2.5 bn to Cytonn effectively gave Cytonn Real Estate 50% allocation of Fund 1. We expect a larger amount from Fund 2, scheduled to kick off in the later part of this year
  6. China Africa Development Fund (CADFund), which plans to partner with the government to redevelop 1,000 units in Ngara East Estate. Through the same fund, a local developer Suraya in conjunction with CCECC (China Construction Engineering Construction Consultants Corporation) are set to develop 10,000 affordable units for the civil servants and the public and a further 20,000 affordable housing units for the Kenya Police

Real Estate Investment Trusts (REITs)

• After the listing of the Fahari I-REIT towards the end of 2015, the trading has remained low, with a total turnover of Kshs 117.4 mn having traded. In the month of June, Fusion Capital launched a D-REIT, targeting to raise Kshs 2.3 bn to fund their real estate development project dubbed “Green Wood” in Meru, Kenya. Fusion estimates that investing in the REIT will result to Kshs 1.2 bn profit, with a project IRR of 20.3%.

Challenges

• Despite the increased amount of financing available, it is still at a high cost and can go as high as 21% for development and mortgages, resulting in developers performing poorly, and large expenses for end-buyers These include Home Afrika, who recorded a 62.2% decline in revenue, and Kamuthi Housing Cooperative and Lake Basin Development Authority who risk losing property worth Kshs 4.0 bn and Kshs 2.5 bn to banks due to unpaid debts.

• Respectively, we expect to see increased real estate development in the second half of the year as a result of this financing. In addition, the high rate of returns currently being earned in the Kenyan market is likely to continue attracting more investments into the sector.

2. Regulation

• A number of laws and regulations have been passed or proposed to increase transparency in the sector, especially in land transactions. For instance, the NCA established an online platform for registration of contractors and licensing.
• The collapse of a five-storey building in Huruma led to NCA starting a nationwide demolition of substandard buildings, an activity that is still ongoing.
• On the legal front, several laws that are likely to have positive effects on the real estate sectors were passed or proposed. They include in the budget, the proposal to scrap off the NEMA and NCA submission fees, removal of Capital gains tax on inherited property and a proposal to reduce the tax for developers developing more than 1,000 affordable units in a year from 30.0% to 20.0%. Also Eurocode standards that aim to match local construction standards to international ones were adopted in favour of the British Standards.
• Treasury also allowed NSSF to channel mortgages to the public and is planning to set up mortgage liquidity facility to lend to Saccos, enabling them to lend onwards to their members in greater amounts.

3. Developments

• Increased development activity was witnessed in the real estate sector in the first half of 2016, with several projects being launched and breaking ground. Most developers focused on the low to middle income residential theme in a bid to close in on the gap and tap into the high demand in that sector. Some of the developments that were launched or broke ground in the first half of 2016 include:

1. A Ksh 600m Low to mid income residential, Lifestyle properties in Kiambu.
2. Public private Partnership in Nairobi, Low to mid income Residential project estimated to be 300bn
3. Express Kenya, a Ksh 2.0 bn mid to high income residential,project in Nairobi.
4. Gakuyo Real estate, a Ksh 2.5 bn Low to mid income residential project in Muranga.
5. Kenya Projects ltd, a Ksh 100mn project in Kiambu.Read more