Here is what to expect in the real estate market this year
The newly constructed Global Trade Center (GTC) Office Tower. The project estimate is over Sh 40 billion, creating thousands of jobs.
Within the last two to three years, so much has happened both locally and internationally that has significantly affected the way we do things.
Events such as the Covid-19 pandemic, for instance, resulted in the disruption of global supply chains, forcing individuals as well as organisations to innovate in order to get by.
Just as we were beginning to recover from the pandemic, the war in Ukraine ensued which resulted in massive inflation and saw the prices of key commodities rise sharply. This, again, forced businesses back to the drawing board.
Amid all this, a looming climate crisis sparked conversations around the issue of environmental preservation. Organisations keen on reducing the level of carbon footprint embraced sustainable approaches to work.
Then of course there was the General Election in our country which saw a new regime assume power, with the new President issuing many pledges to the electorate. These pledges included reconstructing the economy, and ensuring basic commodities, including housing, were more affordable.
Many of the above factors are expected to continue shaping activities across most sectors of the economy this year. We can expect to see a lot of innovation happening as organisations seek better ways of coping with new challenges.
This is especially true in the real estate industry, which compared to other industries, has been slower in adjusting to the changing times, and whose survival solely relies on innovation.
Alternative modes of real estate financing
Doreen Onwong’a, a real estate lawyer and partner at KN Law LLP, says that with efforts being made by the State Department of Urban Housing as well as private developers to increase their capacity to deliver affordable houses to Kenyans, we can expect to see a more deliberate effort by financiers to back real estate projects. This is projected to come from both local, and international financing organisations such as the International Finance Corporation (IFC).
Doreen Onwong’a is a real estate lawyer and partner at KN Law LLP.
“In matters of housing, financing has always been a key challenge. For someone who cannot afford a mortgage, getting a long-term loan from a bank is always a challenge,” notes Onwong’a.
She predicts that this year, we could see more innovative and tolerant facilities such as the capital markets overtaking traditional modes of financing real estate projects, such as banks.
“Banks have taken a very conservative approach towards lending money to real estate developers, thereby creating a big opportunity for capital markets to fill that gap. We could see a couple more capital market tools, including bonds, being preferred to finance real estate,” noted Onwong’a.
New technologies
To deliver cheaper homes, Doreen notes that stakeholders will be keen on leveraging new technology to produce better products, including floor plans.
Prices of key construction materials such as cement have significantly shot up over the last two years as a result of the disruption of global supply chains, which has caused a shortage of key inputs such as clinkers.
A Kenya Airways employee controls an unmanned aerial vehicle (UAV) as it spreads fertilizer over a tea farm at Kipkebe Tea Estate in Musereita on October 21, 2022. The agricultural drone market is expected to grow in the coming years, with some reports suggesting it could reach 10.5 billion USD by 2028.
Manufacturers are expected to continue using modern technologies to develop construction materials such as concrete or bricks out of products that can be sourced locally to reduce costs. These materials include plastics, straw bales, wool and mud.
Because they are renewable and recyclable, these materials would not only help to reduce the reliance on finite natural resources that are costly to harness but will also help reduce carbon emissions, thereby contributing positively to the sustainability agenda.
Going forward, new technologies are not only going to be used in the development process, but also in the sales process. Solutions that enable prospective buyers to view properties virtually, for instance, are going to be more common.
“The pandemic accelerated digitisation across all sectors. And although the digital shift was slower in the real estate market, this year it is expected to gain pace,” noted Onwong’a.
And while virtual property tours and digital house hunting are not new concepts, in the year 2023, these are expected to become more pronounced. Realtors are expected to turn to virtual functions such as 3D tours, virtual staging and drone technology to appeal to the young generation which is more accustomed to the conveniences of the modern world.
Indeed, most buyers would still want to tour the property physically before making a final decision to purchase. However, the time and expense saved on visiting multiple properties virtually, and selecting the best property, would still be appealing to the customer, and by extension, the developer or realtor.
Browsing for residences and getting in touch with real estate agents digitally has also become popular, and with more residential housing units coming up, in 2023, we can expect to see home listings mostly being done online, as opposed to the traditional modes of advertising.
We could also expect to see more use of property management software by property owners to manage their real estate portfolio and customers online. Already, a lot of technology companies are developing solutions that enable people who own multiple residential houses to know the vacancies and status of payments instead of relying on agencies and caretakers. Tenants can also use these portals to speak up. Agencies working with multiple landlords can also leverage such tools to simplify work.
Smart homes that leverage the Internet of Things (IoT) and Artificial Intelligence (AI) technology to manage heat, ventilation, air conditioning, lighting, fire, and building security could also become more popular, as developers seek to appeal to a more tech-savvy client base.
Sustainable real estate
To align themselves with global demands for Environmental Social Governance, Doreen notes that industry stakeholders are also likely to pay more attention to sustainability issues including environmental, social, occupational, and community health and safety. With less than 50 green-rated buildings, Kenya lags way behind the global standard for green-rated buildings.
“Sustainability will be key. Tying it to the financial element, international investors such as the IFC and others will require sustainability and efficiency in design and construction, and we can expect to see government and private developers putting more effort into this,” notes Onwong’a.
Her words are echoed by Gikonyo Gitonga, the Managing Director of Axis Real Estate and a Director at the Kenya Property Developers Association (KPDA), who notes that sustainability, green buildings and Environmental Social Governance (ESG), are going to be very hot topics going forward.
Gikonyo Gitonga is the managing director of Axis Real Estate and director of the Kenya Property Developers Association (KPDA).
“Any developer or investor looking to sell or lease a property will have to take sustainability considerations very strongly, otherwise they will struggle to sell their property or get tenants,” notes Gitonga.
Alternative assets
Gikonyo notes that although the slowdown occasioned by Covid-19 is almost ending, an imminent global recession in the world could affect our economy this year, and the real estate industry will not be spared.
He adds that although there is hope for the new government to revive the economy through its various initiatives including a push to enhance a digital economy that might help the economy to rebound, economic change can only begin to be felt in the second half of 2023.
“As the economy struggles, disposable incomes will go down, discretional spending will reduce and the focus will now be on essentials. This means that convenience retail stores that are in the neighbourhoods or suburbs will be preferred by customers compared to big malls,” notes Gitonga.
He says that consumers will opt for these convenience stores to avoid overspending and that this, coupled with the growth in e-commerce, could affect the big malls as real estate assets.
“Markets and assets that are perceived by investors to lack realistic prospects of rental and income growth in the near term may see a sharper yield adjustment,” notes Gitonga.
As more companies adopt work-from-home models, and as the search for convenience intensifies, Gikonyo notes that we can also expect to see more rampant development of interconnected precincts that provide the opportunity for retail, dining, entertainment, education, networking, fitness and wellness, all in one place. A good example is the Global Trade Centre (GTC) in Nairobi, which features apartments, a mall, and a hotel among other amenities.
Life sciences and healthcare assets are also expected to continue performing well in 2023. This is driven by the need to revamp our healthcare system, whose limited capacity was brought to light by the pandemic.
An ageing population and increased focus on well-being could also drive this growth. Data centres and warehouses are also expected to perform well in 2023, driven by increased digitisation and growth in e-commerce.
