The KPDA Developer's Digest Q2 Issue

16
Have Your Say
The Developer’s Conundrum
– Navigating the Turbulent
Real Estate Market in Kenya
By Mburu Karanja
Managing Director,Cemex Holdings Limited
In August 2018 I gave a presentation at the
KPDA CEO breakfast forum, my key take home
message was “Time is the new Money!” This
message holds true even more today than it did then.
As we all know, the real estate sector is primarily
driven by economic factors, so let’s examine what has
been going on. In the last twelve months USD/KES
has depreciated by 16% from 118.0 to 140.8. In the
same period, the Central Bank Rate (CBR) has moved
from 7.5% to 10.5%. This coupled with the global
economic crisis, inflation, cost of construction inputs
i.e., steel, cement/concrete and labour have been
on an exponential rise. In a nutshell, the slowing
down of the economy has resulted in a decrease in
disposable income in a shrinking middle class.
The real estate sector is currently experiencing what
I would like to call a “Developer’s Conundrum”,
which can simply be explained as all the traditional
cost drivers in development are rising at a fast rate
and the purchasing power of our homeowners
is diminishing due to a challenging economic
environment.
Today developers are paying a significant
premium due to economic and market uncertainty.
The elongation of time in project delivery is
exacerbating uncertainty and inevitably driving up
this development cost premium, meaning a lot of
Kenyan developers will face significant challenges on
delivering their projects successfully.
All hope is not lost though. A survey by Global Data
estimated the Kenyan construction market size
at $17.3 billion in 2022. The market is projected
to achieve an Average Annual Growth Rate
(AAGR) of more than 5% between 2024-2027. The
industry’s growth will be majorly supported by the
government’s focus on implementing public-private
partnership (PPP) projects and attracting private
investment.
Increasingly, green building solutions are the future.
A good example is Excellence in Design for Greater
Efficiencies (EDGE) an innovation by the International
Finance Corporation (IFC), whose principles are
embedded on energy and water efficiency thus
reducing the carbon footprint on the environment.
Moreso, this will allow developers to enjoy incentives
from banks through green financing which is more
cost effective compared to commercial financing.
Exploring Opportunities
Project performance remains in the spotlight in most
surveys, with only half of respondents completing
their projects on time. C - MAX Advanced Building
System offers a solution this dilemma. This green
building technology; has the advantage of quality
and affordability.
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