Centum’s Two rivers mall set to open doors next month

PERIOD: August 22  to 28, 2016

25/08/2016 : The Daily Nation, DN2, Pg. 2

22/08/2016: The Business Daily, Pg.7

• The shopping mall sits on 11 of the 102-acre property neighboring the affluent neighborhoods of Runda, Nyari, Gigiri and Muthaiga in Nairobi
• The main reason for the expansion is a move to increase the lettable space from the original 460,000square feet to over 700,000square feet, according to the investment firm, which is a significant share holder
• The shopping complex was initially to cover a total of 1.2m square feet of land, but this has increased to 1.7million square feet
• Centum’s Two Rivers Mall, situated along Limuru road, is expected to open doors next month following two previous postponements brought about by an expansion of the original retail space
• Brands expected to set up shop in the mall include Deacons, Porsche, Essentials and Foschini, as well as nearly a dozen banks, including Sidian Bank, Prime Bank and Standard. Read more

State agency in the spotlight over ’risky’ building

25/08/2016 : The Daily Nation, DN2, Pg. 2

23/08/2016 : The Business Daily,Pg.6

• A government agency charged with ensuring safety in all workplaces has been accused of endangering construction workers in its upcoming office complex
• The Sh480m building owned by the directorate of occupational safety and health services has been termed unstable
• Auditor General, Edward Ouko, says that the foundation of the building was poorly done and poses a risk to workers
• The building has gone up to four floors
• The Occupational safety and health services directorate has the mandate of monitoring work places to ensure employees across the country are operating in safe conditions

Kenya to build sh10b construction supermarket

25/08/2016 : The Standard, Home & Away, Pg. 2

22/08/2016 : The Standard, Pg.31

• Kenya is planning to build a sh10b one-stop construction supermarket in Athi River, Machakos county
• The supermarket will sit on 29.6acres
• Construction is expected to be completed by July next year
• The supermarket will serve as an industrial hub, manufacturing base, research centre, sales and demonstration display centre for new building technologies
• Trade, Industry and Cooperatives Cabinet Secretary Adan Mohamed sad during the groundbreaking that the supermarket will reduce the cost and time of construction of buildings by 50pc.
• This supermarket will be set up by a Chinese construction and engineering company.
• The country is also planning to put up a steel plant in Mombasa. Read more

Kenyan new president of regional architects body

25/08/2016 : The Standard, Home & Away, Pg. 2

• Kenya architect Gad Opiyo has been elected as the new president of the East Africa Institute of Architects (EAIA)
• Opiyo who was elected recently during the Architectural Association of Kenya’s(AAK) annual convention, is also the chairman of AAK’s Architects chapter
• Opiyo replaces the outgoing Ugandan EAIA chairman Robert Kiggundu
• The position is rotational after one year
• EAIA was formed in 1913
• “We are called upon to seize the future together; let the bright light to EAIA shine on the East African Community… This is the hope we must go back with to Uganda, Tanzania, Rwanda and Burundi that with our new spirit of community we shall sustain the institute,” he said.

Kisumu, locals protest estate building over land issue

25/08/2016 : The Standard, Pg. 28

• Residents of Kanyakwar village have vowed to frustrate the construction of sh325m gated estate
• They claimed the developer had grabbed their communal land
• Over the past two weeks, police have had to use tear gas to disperse protesting villagers at the site
• They pulled down a fence
• Armed with the letters from the Ministry of lands, the National Lands Commission, the anti-graft agency and the courts, they said only intervention by the NLC will stop them from disrupting the planned construction
• A letter from the National Construction Authority (NCA) shows the firm has paid sh1,626,778 in levies.

Uganda high-end housing sector to get $12m boost

20-26/08/2016 :The East African, Pg. 40

• Kenyan real estate firm Property Development Management Holdings has announced plans to enter Ugandan market, with a view to build high-end apartments for the Kampala elite
• PDM says it will invest upwards of $12m to build Infinity Court, a complex of 30-bedroom apartments in the upscale of Kololo suburb
• Data from the Uganda National and Housing policy shows that the country’s urban centres require 65,000 units every year, but only 20,000 are constructed. This creates annual deficits of 45,000 housing units
• While PDM is eying the high-end market, demand is greter at the lower end.
• Uganda’s 2014 national population and housing census shows that 57.1pc of the 4.2m people who make up the country’s  urban population live in single bedroom houses, even though the average household size is a minimum four people
• Another 29pc of urban dwellers live in two-bedroom houses
• Rebecca Kamugungunu, communications manager at oonline property portal Lamudi, said that the average amount that Kampala residents pay in rent is between Ush300,000($87.5) and Ush500,000($146)
• But Gideon Ngure, PDM Holdings’ marketing manager, said that his company is targeting discerning home buyers seeking luxury homes
• “Infinity Court will offer one of the first rooftop pools in an apartment complex that will also have a club-house and gymnasium,” he said.

Migori, county and miller to upgrade three roads at the cost of sh18m

23/08/2016 :The Standard, Pg. 38

• The county government and Sony sugar company will upgrade 3 roads at a cost of sh18.5m
• Governor Okoth Obado and company’s managing director Pamela Jane yesterday signed an MoU that will see 25km carpeted
• Upgrading the roads will ease the cost of transporting cane
• The roads are in areas from where the company sources its raw materials
• Sony sugar will give sh11m and the county government will give the rest

Bamburi profit down 6.3pc on slowed construction

26/08/2016 : The Standard, Pg. 48

• Cement maker Bamburi cement has posted a 6.3pc decline in its decline in its half-year net profit to sh2.89b on account of slowed construction activities
• According to the company’s board, the high interest rate experienced between the last quarter of last year up to March this year made investors shy away from taking loans for building houses
• Also slight reduction in export volumes to Inland African markets reduced its sales to sh19.1b. this is a sh210m drop compared to a similar period in 2016
• As a result, cash generated from operations reduced to sh4.1b, translating to a dip of 25pc from sh5.5b generated in 6 months to June 2015
• “Our 2016 half-year results demonstrates the progress we have made in the Group to deliver consistent, competitive and responsible growth,” said an upbeat managing director Bruno Pescheux
• He said the cement maker expects a stable macro-economic environment that will see continued investment in infrastructural projects.
• The latest banking supervision report by Central Bank of Kenya shows that the construction industry was the biggest headache for banks for failure to service most loans last year.

Britam plans sh3b serviced apartments as net profit nearly triples

26/08/2016 : The Standard, Pg. 49

• Britam is planning sh3b serviced apartment project before the end of year with an increased focus to diversify income streams
• The firm revealed its development plans after announcing the half years results, where net profits nearly tripled to sh1.77b, driven by a sharp rise in investment income
• Unrealized losses on the fair value of investments in the stock market however eroded the profitability
• Group Managing director Benson Wairegi said his firm expects to break ground for the 162-unit development after receiving the necessary regulatory approvals before the end of the year
• It will be the second major real estate project for the firm after completion and occupation of the sh7b-worth Britam Tower, also expected within the third quarter
• Wairegi adds that the firm will develop the planned apartments to the five-star hotel standards, as it eyes travelers who are seeking a different type of accommodation
• A market study done by the firm had revealed shortage of top quality institution-backed apartments in Nairobi
• Rental yields are significantly higher for such property while it offers a long term stream of revenues than could be generated in developing to sell
• The two projects are expected to help the firm diversify from the stock market whose returns are not predictable
• A subsidiary called Britam Properties was incorporated last year to develop and manage real estate projects as part of the diversification strategy meant to reduce portfolio risk and exposure in the equities market. Read more

Tens of buildings to be demolished in Nakuru-Nairobi road expansion

25/08/2016 : The Standard, Pg. 38

• Expansion work on the Nairobi-Nakuru highway has started
• The Kenya National Highways Authority (KeNHA) has started marking the highway, with some buildings being earmarked for demolition
• Buildings worth millions of shillings will be brought down in the project the seeks to construct a dual-carriage between Rironi and Nakuru town
• This emerged when KeNHA officials met affected traders in Naivasha as they embarked on the process of identifying land through which the highway will pass
• During the meeting held at Kayole estate, it emerged that tens of buildings including the upcoming mall would have to come down during the project
• According to an official from the Authority, the meeting was meant to sensitise the affected families before work can begin.
• The official said the route had been drawn, adding that they were now seeking funds to compensate those affected
• “All the affected traders have been notified about this project,” he said.

Fusion D-REIT fails to list on the Nairobi Securities Exchange after being undersubscribed by 62.1%, raising only Kshs 878.3 mn against a target of Kshs 2.3 bn. Chinese construction company, China Wu Yi (Kenya), launches a Kshs 10.0 bn factory on Mombasa Road, Nairobi, for use in production of alternative building materials

• 28/08/2016 : Impact of the Interest Rate Cap, & Cytonn Weekly Report  No: 34

The results of the Fusion D-REIT were announced, recording a 37.9% subscription rate, raising Kshs 873.8 mn out of a targeted Kshs 2.3 bn. This was from four investors, three of whom were shareholders of the asset to be acquired. It hence failed to meet the listing requirements of the Capital Market Authority requiring a minimum of 7 investors and a minimum subscription rate of 50.0%. This undersubscription was despite extending the closing date twice, which was initially set for 15^th July, 2016.

We attribute the under subscription to the following:

1. Insufficient knowledge among investors on the key advantages as well as return profiles of the REITs,
2. Opacity of returns of assets in the REITs,
3. Preference to other investment instruments like government securities, and
4. Poor investor sentiments on the performance of listed Real Estate such as;
   1. The Stanlib Fahari I-REIT which achieved only 29.1% subscription, and is now trading 50.0% below its issue price of Kshs 20.0. 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 1.2, which is 90.4% below its issue price

The unsuccessful listing of the D-REIT is a big blow to the real estate investment sector in Kenya. This is because an active real estate capital market not only provides the much needed financing for developers but also boosts returns for investors. Real Estate generally offers higher returns compared to both equities and government securities, with a 5-year annualized return at 25.0% compared to 9.6% and 10.0% for 91-day T-bill and equities (NASI), respectively. Real Estate investments has low correlation with traditional asset classes making it an important diversifying tool in portfolios.

As outlined in the Cytonn weekly Report no.32, 2016, to boost investment in this sector stake holders need to do the following:

1. The government or stake holders in the industry need to sponsor a REIT to proof the REIT concept to the market and boost investor sentiments,
2. The promoters should get broad institutional support before launching another real estate listing. They should thus educate and bring on board the main institutional investors to commit to supporting the REIT before launching,
3. The CMA needs to lower the minimum amounts required for investments. The current amounts of a minimum of Kshs 5.0 million restricted only to professional investors locks out most investors,
4. The promoter and manager should ensure that the investment provides some level of principal plus minimum return guarantees to the buyers to get them comfortable that issuers are convinced about their REIT,
5. The assets selected for the portfolio should be compelling and capable of delivering superior returns. For instance, commercial real estate should have minimum rental yields of 12.0%.

Investors are expected to shy away from listing REITs in the Nairobi Securities Exchange (NSE) in the short to medium term following Fusion’s poor run. However, if the above factors are implemented, a successful listing of a REIT will not only be viable but also profitable to the investors.

China Wu Yi, broke ground on a Kshs 10.0 bn factory for Alternative Building Technology (ABT) along Mombasa Road in Nairobi, Kenya.

• The ABT to be manufactured will include pre-fabricated and pre cast building material using Expanded Polystyrene (EPS) Technology. The factory will sit on 30-acres of land and is set for completion in June 2017. The factory will encompass

1. A design and construction area,
2. A marketing and display area complete with a supermarket,
3. A research lab, for production for their own consumption and also for sale.

• China Wu Yi will work in collaboration with two German companies that will provide design software and material for use in construction of the pre-cast wall panels, stair cases, lift shafts, foundation piles and hollow core slabs. The company decided to construct the factory, which has been fully funded by Chinese investors after they won construction tenders worth more than Kshs 10.0 bn in the country.
• These include the construction of the University of Nairobi Tower and the expansion of Waiyaki way from James Gichuru Road junction to Mai Mahiu turnoff on the Nairobi-Eldoret Highway.
• Other companies also engaged in production of ABT include: National Housing Cooperation (NHC), Boleyn Magic Wall Panel Limited in Kitengela and C Max in Ruiru. The production of pre-cast blocks has been on an upward trend in recent years, as the market has started accepting and using the technology though the uptake is still low.
• This is mainly due to insufficient information on the technology and mistrust on its quality and strength. ABT’s have a lot of advantages to developers including:

1. Shorter construction periods – it is estimated that the use of ABT and EPS in particular can reduce construction time by up to 50.0% as they come ready for installation and fitting,
2. Lower construction costs – this comes about as they are light hence lower excavation costs and are more efficient. Due to shorter construction periods, if uptake is fast, financing costs are reduced and in large scale construction they offer economies of scale as well,
3. Durability – they are stronger and more efficient as they are fire and earthquake resistant, and are of no nutritional value to moles hence more durable

• The use of ABT is an ideal solution to the under-supply of residential units in Kenya, as even though they are not cheaper than brick and mortar, their ability to shorten construction time will aid in the delivery of large-scale housing. For instance, the technology is being used in construction of houses for the Police Service which has a 78.0% shortfall from the initial estimates. The project, which is being developed by the Ministry of Lands and Housing in conjunction with several contractors in different parts of the country including Kisumu and Ruiru, will deliver 1,850 units a year and the construction will be 38.0% cheaper, costing Kshs 20.0 bn from the initial Kshs 32.0 bn.

Impact of the Interest Rate Cap

On August 31, 2016, The banking amendment Act to cap Interest rates was enacted, the maximum interest rates chargeable for credit facility in Kenya at no more than 14.5%. The minimum interest rate  granted to a deposit  held in interest earning in Kenya to at least 7%.

As can be witnessed in any developed economy, free movement of goods and services is essential to correct pricing mechanisms, determined by the forces of demand and supply. Anytime there is external interference, such as with quotas or minimum wages, there is either excess supply or demand, and leads to a deadweight loss in the economy and ineffective allocation of resources. While many Kenyans may rejoice in lower interest rates, the truth of the matter is simply that there is an excess demand for bank credit, with financial institutions not willing to meet the demand at set prices.

The effect of signing the Bill was felt immediately within the financial markets:

1. Banking sector stocks declined by 15.6% in 2-days of trading since the close of the market on Wednesday,
2. Investors lost Kshs 88.9 bn in the same span of 2-days, highlighting the immediate negative impact of the decision on foreign sentiment towards the banking sector’s future,
3. Banks with large retail bases such as Equity Group and Co-operative Bank were the worst affected, both losing 20.3% and 20.6%, respectively, while the least affected counters were for CfC Stanbic and Standard Chartered, both losing 6.3% and 7.8%, respectively. It is quite clear that banks whose clientele are more inclined to retail and SME’s are bound to suffer more in this regime, given the high spreads they enjoy, and those that serve corporate clients will not be affected as much,
4. A number of banks informed their clients of their intentions to do away with savings accounts, leading to a reduced number of attractive banking products in Kenya, and,
5. Lending towards motor vehicles and providing unsecured loans was stopped by a number of banks.

In as much as we share the President’s sentiments to increase affordability of financial products for the end consumer, such regulation of the main financial intermediary in the economy will only lead to more suffering of the “bracket” this Bill seeks to protect. The Bill is oblivious of other factors that affect pricing of loans and deposits such as risk profile, term structure of interest rates, cost of funds and macroeconomic variables. Furthermore, pegging it to the Base Lending Rate will depend largely on the transmission mechanism of monetary policy decision into the economy and the effectiveness of the Monetary Policy Committee in assessing the state of the economy. Though the monetary policy is gaining relevance, we are yet to see it a true pricing mechanisms for investors and banks, who have largely maintained their margins despite volatility in interest rates.

Read more.