The sales, purchases, rental, and occupancy rates of residential, office, retail, and hospitality real estate slowed in 2022 and in first half of 2023 compared to 2021.
The Kenya Financial Stability Report, 2023 notes that the real estate remained subdued in 2022, partly reflecting low demand in post-COVID-19 pandemic as some organizations moved to virtual offices.
Prices for residential and office property for hotel and restaurants and meetings, slowed down due to decline in demand and increasing shift of from office to working from home.
“Despite slowing rental prices, shifting of retail businesses from shops and malls to online and from office to online and homes, has reduced footfall in the domestic chain stores and demand for office space. Furthermore, slow growth income compelled households to rent more apartments than detached and semidetached,” the report by CBK and other financial regulators states.
Consequently, the decline in demand for property is elevating credit risk due to investors and borrowing facing difficulties loans repayments.
Despite slowdown in the real estate, building and construction sector grew by 4.1 in 2022 but slower than 6.7 percent growth in 2021. It grew by 2.2 percent in the first quarter of 2023.
“The cost of construction as reflected by the construction price index increased by 0.5 percent in the year to June 2023, underpinned by increase in the cost of fuel. Despite increase in the cost of construction, the supply of apartments increased to match demand however supply for commercial space, office space, detached and semidetached houses exceeded demand, which moderated their prices in 2022 and first half of 2023. The low demand of commercial, detached, and semidetached houses is reducing ability of the real estate and construction sectors to repay their loans. As a result, lenders slowed financing construction projects to mitigate underlying risks,” states the report.
