MIP WEEKLY CONSTRUCTION INDUSTRIAL REPORT NO.15

Period: November 9 to 15, 2015

G.C Retail (Formally known as Actis) owner of Garden City Mall has opened a court battle with a Chinese firm it hired to build Ksh 5.05 billion facility, citing the contractor’s failure to keep on the construction schedule.
The Chinese firm, Sinohydro, had initially moved to court to seek to stop G.C Retail from collecting a performance bond of Ksh 606Million that was issued in favor to ensure the project’s continuity in the event of a dispute during construction.
Sinohydro is claiming Ksh 969 Million from Garden city for unforeseen changes it was forced to make during the construction following the owner’s failure to deliver crucial materials that were stipulated on the original Architectural design.
G.C Retail responded to the suit with a Ksh 1.2 billion counter claim against the Chinese firm for delays in project completion as expressed in the contract.
Sinohydro was to initially complete construction in October 2014, but sought an extension of time to January 2015, before asking for a May 2015 deadline.
G.C Retail’s refusal to grant the Chinese firm another extension in January has seen Sinohydro rack up the Ksh 1.2 Billion penalty going by the penalties in the contract that are calculated on a daily basis.

Prices of prime residential properties in Nairobi has recorded the second fastest growth in Africa amidst harsh economic conditions and widely reported corruption
The Knight Frank Prime Global Cities index for the third quarter showed that Nairobi prices increased by 13.5% in the 12 months to September.
There have been claims of the country’s real estate market being driven by dirty money from corruption and previously international piracy.
Kenyans also working abroad have also been identified as key players in the country’s real estate sector

Stanlib REIT offer gets an extension

Investors have up to November 18 to buy shares in the First Real Estate Investment Trust (REIT) after Investment Company Stanlib extended the deadline.
The capital markets authority said this was aimed at allowing the company more time to market the Stanlib Fahari I –REIT shares by conducting sensational workshops especially with investors who have shown interest with the deal.

Mortgage uptake down as rates rise

The interest rate paid for mortgage car and personal loans has spiked leading to October being the slowest month for Kenya’s private sector.
A survey, purchasing Manager index ( PMI) by CFC stanbic , revealed that the sector was undermined by slower expansion in output owing to a spike in lending rates, leading to the weakest overall in overall improvement in operating conditions in the survey’s 22- month survey.

Bamburi’s Mobile Concrete lab to improve quality

Bamburi Cement has launched a mobile concrete laboratory in a move expected to improve quality standards in the construction industry.
The mobile laboratory will enable builders to conduct on – site testing of materials and offer solid technical advice on concrete at various construction sites.
The lab aims at ensuring that the quality of concrete and its constituents materials used on construction sites meets Kenya Bureau of standards (KEBS) specifications and requirements by the NCA.

Pan African Fund REIT Planning to enter the Kenyan Market

To this end, it has gained significant commercial and retail assets across South – Africa and will be targeting to raise USD 500m to invest in real estate across select markets in Africa.
The Pan African Fund will be targeting to invest 80% of the fund in income properties with the remaining 20% being invested in development properties.
Some of the properties that the fund will be targeting to invest in include shopping malls, offices, hotels and warehouses.
It is clear that the Kenyan real estate sector is attracting many international players.
This is be attributed to:
- Focusing on the high yields available in the market, given the 9% p.a yields available in the office and retail segment of the market.
- Return potential from equity developments in the region.

Growth In the Real Estate Industry

According to the recently released KNBS report on Leading Economic Indicators, there has been an increase in the number of building plans submitted for approval from Q1’2015 to Q3’2015.
This can be attributed to an increase in development activity as developers seek to identify and fill market gaps in pursuit of higher returns. Of the building approvals granted this year, residential approvals increased by 14.1% with Ksh 103.8bn worth of residential projects being approved, which is a Ksh 12.8 bn increase compared to the residential projects approved within the same period last year.
This growth can be attributed to:
- The growth in middle income Segment of the market, driven by both formal and informal sectors.
- Growth of satellite towns in the Nairobi Metropolis, made accessible by infrastructural upgrades in and around Nairobi.
The emergence of Institutional developers such as Cytonn Real Estate, Athena Properties and Mentor Management, which are turning their focus towards catering for the inherent demand in the economy created by the housing shortfall and the local Government’s inability to provide basic services