Permit Approval by Counties Lead to Stagnation in the Real Estate Sector
During the second half of this year, there has been a significant slump in both the commercial and retail real estate sectors. While the retail sector has experienced a 0.2% slump, the commercial sector has seen a downward spiral of 0.1%. This is a testament to the stagnation of the real estate sector during this period.
During the same mentioned period, the residential sector came to a standstill at an uninspiring 4.9% according to Cytonn, a reputed real estate player.
It should be noted that most of the real estate boom has been experienced in the counties of Nairobi, Kiambu, and Kisumu and sadly, these are the same counties that have been hard hit by delay in the processing of documents.
In turn, due to this delay in releasing construction permits, the multi-million real estate and construction sector has been on the decline.
The report further adds that some of the factors that have contributed to these delays include an inefficient e-permit network, staffing problems, and the county planning teams being suspended.
According to the World Bank’s global Ease of Doing Business Index, you can spend as long as two years waiting for a construction permit in Kenya. This has seen Kenya performing poorly on this list. For instance, Kenya had fallen in ranking from 124 to 128 between 2017 and 2018.
With no visible and significant upgrades on the systems, 2019 has not been any different and according to the report, Kenya will continue performing dismally on this ranking.
While the government is involved in a crucial plan to try and provide affordable housing via public-private partnerships, bodies such as the Kenya Private Developers Association (KPDA) and the Architectural Association of Kenya (AAK) have raised the alarm and warned that this might be impossible.
With the delays in approving construction projects the order of the day, this might translate into extremely high building costs for private developers.
To add to an already depressing situation, both the commercial office and the retail sectors have seen an oversupply in 2018 at 5.2 million square feet and 2.0 million square feet respectively.
In addition, the sector has been affected by lack of enough financing by both investors and potential buyers, not to mention the delays in processing documents.
The Cytonn report continues to state that there was a 5.2% growth in the private segment credit in June 2019 against a 14% average between 2013 and 2018.
During the third quarter of 2019, the commercial office segment had a rental yield of 7.7 % from 7.8% in the first 6 months of 2019. Similarly, the retail segment saw a slump to 8.0% from 8.2% in the same period.
The areas around Nairobi that topped the list as far as residential rental yields are concerned are Kilimani and Ruiru, with 5.8% and 6.1% respectively.