The Impact of Covid-19 on Real Estate & Construction Industry in Kenya

Introduction

Governments, businesses and communities worldwide are facing the reality of the Corona virus. The short-term implication on the economy are undeniable, business and individuals worldwide have been somehow affected. If the Covid-19 pandemic hits a peak in the first half of 2020, there will be a rapid recovery in the second half of the year, offering investors the opportunity to buy assets now.

Market Review

The abrupt entrance of covid-19 into the country has come with it’s share of effects on the Kenyan economy and in particular as we will see in the is article, on the real estate sector and by extension the construction industry. Prior to the outbreak, the industry was already set to take a major hit after the signing of the Finance Bill 2019 by the president of Kenya. High risk borrowers like individuals would have to bear with an increase in loan rates of up to 3% subsequent to removal of the legal cap on lending charges.

As the property sector comes to terms with the impact covid-19 will have on the industry, the part of the buying process very much at risk is viewing, arguable one of the key factors before potential buyers. can consider proceeding with the purchase. In a culture that has been sinuses to physically visit a potential property (sometimes not once but a couple of time), virtual tours have not yet been sufficiently embraced in Kenya.

Should I Invest Now?

This has been an interesting conversation marred with uncertainty, especially that no one knows how long the pandemic will last. While there is much hope that eventually the virus will be controlled, property is and will still be a good option to invest in. This is a great time to be an investor, people with money are going to take advantage of the situation.  The industry itself is obviously changing just like everyone is, by the minute.

More than any other time, investors must not panic, the property market is here to last. However, there is anticipated market turbulence, there might be a higher supply than demand in the short term. There is definitely going to be some market correction, things will slow down for obvious reasons, however, we do not anticipate massive price drops in value. There has been a sudden surge in distress sales, particularly in Kilifi county, largely attributed to fear of the unknown (coronavirus implication) and the fact that some of the property owners may be in financial crisis owing to previous financial commitments.

A buyer’s market does not resonate well with sellers, but as is, sellers are struggling to sell, the moment buyers take control of the market then property transactions will shoot. Again the next general elections are set for 2022, as always elections have had an impact on the property market, once campaigns hit their peak, property deals and transactions greatly slow down. Therefore 2020 and 2021 remain the most viable time to invest in real estate in Kenya.

Construction Challenges

There has been a great reduction in the ability to get construction materials due to coronavirus. In the Kenyan Coast, where coral blocks are predominantly the preferred construction material, quarries have been closed as a mitigation factor against potential increased infections. This hinders builders from timely completion of projects. Similarly other construction material suppliers are not stocking up as before making it difficult to access materials easily and cost-effectively.

But investors are enjoying this reduction, given that its continuity will lower the amount of inventory in the market (however little). If the inventory Lowers, then it allows for a “multiple offers situation” because there is not a lot of competition. As the price of property lowers, the inventory also lowers. But there is more to it; lower inventory in single-family properties are good for long term rental investors because people will always need a place to live. Therefore rentals stay occupied a lot faster and a lot more efficiently. But for real estate agents, low inventory means low listings and less sales.

In Summary

Financial institutions are becoming lenient with lending, giving investors an opportunity to take advantage of distress sales and reduced prices. The industry is expected to spring back when the pandemic is over, though it is expected to be a gradual process.

Investors should not shy off to look outside the box, all predictions being floated now are mere educated guesses. We are going to come out of this stronger.

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Author: John Dominic, Euro Trust Real Estate