Impact of Covid-19 in the Kenyan Real Estate.

Real Estate in Kenya: The Impact of Covid - 19

Following the unprecedented disruption to the economy from the impact of Covid-19, the real estate sector has not been spared. The Government and health directives in place and being adhered to; social distancing directives, travel restrictions, curfews and stay safe / stay home advice, they have affected the real estate sector. The three immediate effects are; 

A. Disruption of Supply Chains

The stay at home directive and the 1.5 meter rule (social distancing) has rendered work places unequipped to comply, which has seen a reduction in the work force. Construction sites have adhered to the guidelines issued by the National Construction Authority (NCA) requiring contractors on-site to reduce the number of workers to a level that can allow workers keep at least one meter apart. Some organization have been forced to work with skeleton staff with the majority working from home or on paid or unpaid leave. Even worse most have lost their jobs as the organizations can no longer afford them. The result is longer production periods.

B. Decline in Collections

Few payments are being made. Collection of rents has become a challenge especially from the poor and the middle class as they depend on daily wages. This has seen some property owners reducing the rents for some period and giving rental concessions on a case to case basis. Investors who were on the brink of making property purchases or who were contemplating to have held the plans or postponed to a later period. Those who had made off-plan purchase of properties on installments plans have also withheld their payments for various reasons; holding onto whatever cash they have due to uncertainties or not having the cash to make the payments all together. This is as a result of diminishing or already diminished disposable income by a majority of Kenyans. There is also general decline in funding to the real estate sector due to obvious risk aversion during the pandemic. Lending institutions are not eager to finance construction projects due to the uncertainty in the economy which would translate to longer period for them to get returns on their investment. As well as some offices remain closed or on skeleton staff like the Lands Registry, the lending institutions are not releasing funding.

C. Decline in Construction

With the imminent and inevitable recession, all operations are on a decline including construction activities by developers. This in an attempt to save their cash due to uncertainties glaring at the market liquidity.

Raw materials have also become scarce, high-priced or take longer to be delivered as a result of closed borders, cessation and restriction of movements, curfews and reduced labour force.

Building approvals delays as most of the offices remain closed or are working with skeleton staff in addition to advice to the public to use online services where necessary to avoid crowding the offices. This translates to delays or sluggishness in service delivery.

There has also been a slowdown in construction activities to move existing property first. Delays in funding have also resulted in stalled projects, in the short term. Below are seven, gradual and long term effects of Covid – 19 to the real estate sector in Kenya.

1. Lower Rents and Prices

Diminishing disposable income will eventually lead to renters and property buyers having less to spend, thus leading to a reduction of demand in properties leading to lower property prices and lower market rents in accordance to the law of demand and supply.

2. Reduced Occupancy Rates

Decline of occupancy rates and uptake attributable to movement and social distancing restrictions. Organizations have resorted to making working at home as well as on-line presence as opposed to physical presence, a permanent feature and thus the need for office space will be a thing of the past.

The market instability will see businesses scaling down operations and or shifting to on-line shops to remain afloat, leading to a drop in office space demand, and, therefore increased vacancy rates. Renters having less to spend will also be forced to vacate to cheaper affordable properties probably further away from major cities and towns.

3. Collections Decline

Struggling business will negotiate their rents and other payables into flexible payment plans where possible. This will result to rent decreases, loans restructuring etc as cash flow will be greatly affected. Property owners will lower their expectations to attract the few new inquiries. Property sales will fall drastically because of the wait and see attitude by prospective buyers.

4. Closures of Shops

Organizations will shut down some of their branches as an effort to cushion themselves against the impact of the Covid - 19 amidst declining income. Hospitality sector being the hardest hit due to its massive dependency on tourism and the conferencing sectors. There will be hotels closures for instance the iconic 51 year old InterContinental Nairobi Hotel which is set to close its operations in September over stalled business.

5. Lay Offs

Most organizations, hotels included will scale down operations. Hotel reservations will be low as domestic tourists shy away from hotel stays in an effort to cut down on their spending. This will lead to job losses as they lay off in efforts of staying afloat. Organizations will take requisite measures to minimize overheads by downsizing.

6. Reduced Foreign Investments

Investors will put on hold expansion as well as investments as they adopt a wait and see approach. Investors will place major decisions on hold whilst they assess the situation thus postponement or delay on imminent investment start dates.

7. E-commerce Growth

As Kenyans continue to adhere to the social distancing guidelines and stay at home, there will be an increase in sales of fast-moving consumer goods by retailers through e-commerce firms such as Jumia, Kilimall etc. The decline in foot traffic to physical shops due to social distancing directive, as well as one meter rule at work places will result into a shift to E-commerce.

Online marketing and online shopping and deliveries will increase as stores ensure trading continuity. This will lead to closure of physical shops, as only storage space will be required by the traders.

In the real estate sector, innovation will be vital to ensure business continuity. Incorporation of technology, such as virtual viewing of properties, online enquiries will be crucial.

In Conclusion

Although the severity of the effects of the pandemic on Kenya’s real estate sector are still unclear and developing each day, the overall impact will be substantial, and primarily depends on its time span and measures that Governments, Organizations and Individuals are taking to alleviate its adverse effects.

Agnes Bessie Muthoni

Content Writer at Ownspace Kenya