Every industry in the world has come under the effects of the COVID 19 pandemic, real estate being one of the largely affected industries. With new cases being reported each day, the coronavirus has had a great effect on the economy around the world, more so in Kenya. With measures such as social distancing and movement restrictions via total lockdown in some of the countries, investors are facing challenges in maintaining the security of their assets. It is worse for developers and agents who are facing their worst of strugglings just to get prospectors to view properties and if lucky enough, close the sale.
It is a bad year for the real estate industry like hotels, restaurants, and retail stores to remain closed throughout the pandemic period.
In Kenya, the pandemic has disrupted the growth that was potential in 2020, after recovery signs from the stunted growth in the year 2017 and 2018 started showing off. It was reported by a KNBS Economic Survey 2020 that in the year 2019, there was an increase in the sector’s growth by 5.3% from 4.1% that was experienced the previous year.
In the first quarter of this year, the real estate sector experienced average activities resulting in average investment returns. This led to the marginal improvement in the residential and commercial offices in Kenya, the residential sector recording an improvement by 0.2%, and 0.3% for the commercial offices. For the retail sector, the first quarter of the year was not so kind as they recorded a drop by 0.1% in the rate of investment returns, from 7.8% in the last quarter of the year 2019.
However, the above results cannot be fully based on the effects of the Covid-19 pandemic as the first case in Kenya was recorded in march 2020, forcing people to work from home. Later curfew and movement restrictions in and out of Nairobi were put in place to control the rate of the disease spreading. Some of the effects that hit directly the real estate industry in Kenya after these measures were:
- Slow permits for new constructions as the public offices remain closed.
- Banks not lending loans and mortgages as debtors fail to meet their payment obligations.
- A decline in labor forces and disruption of the supply chain which might take longer till things soften
- Fewer construction activities as developers caution over the possibility of market liquidity declining
- Off-Plan investors having to settle for new completion dates for their properties
- Disruption in the real estate funding avoiding risks during the pandemic period.
The government of Kenya has come up with bills and regulations that are designed to cushion the real estate industry from intense effects of the Covid-19 in the country such as:
- Dropping the rate of the central bank rate and cash reserve ratio to 7.0% and 4.25% respectively through the central bank. This is meant to increase the availability of cash for lending.
- Amendment of the tax act 2020 to the retirement benefits act to allow purchasing of residential homes using pension savings and still securing a mortgage loan.
- 8-point stimulus program worth Ksh 53 billion that will provide soft loans to hotels and related establishments via the Tourism Finance Corporation(TFC).
- Amendment of the Business Laws Act to allow the use of advanced electronic signatures and electronic signatures to execute documentation in the Country. This is expected to increase the rate of land transactions as public offices remain closed.
As uncertainties can happen in the market for no one knows how long the pandemic will last, one thing is clear; the Covid-19 will shape the future of the industry given its effects on the economy, which has changed the people’s way of life. The pandemic is expected to continue for a few more months, affecting the real estate industry in diverse ways, implicating the market.
It’s important to note it might take a long time for the industry to recover from the pandemic effects, the recovery duration depending entirely on the duration of the COVID-19 in the country. Inventors should, therefore, prepare for depressed income levels even after the pandemic, due to a change in course by prospects.
Partnerships between the private and public sectors together with the government to provide affordable homes, bills and regulation by the government in support of homeownership and use of monetary and fiscal policies by the government to sustain the economy are some of the factors that we expect to affect the industry positively. All is not lost.