Housing boom lifts Kenya to league of mid income nations

Money Markets

Kenya’s lucrative real estate sector has rapidly expanded to become the fourth biggest contributor to the country’s wealth. PHOTO | FILE | NATION MEDIA GROUP 

By DAVID HERBLING, hdavid@ke.nationmedia.com

In Summary

• The updated national accounts, set to be unveiled this morning by Planning secretary Anne Waiguru, show that the contribution of real estate sector to Kenya’s gross domestic product (GDP) has more than doubled to 10.6 per cent from the previous 4.9 per cent.

Kenya’s lucrative real estate sector has rapidly expanded to become the fourth biggest contributor to the country’s wealth, a review of national data shows.

The review is expected to catapult East Africa’s biggest economy to middle-income status, with per capita Gross Domestic Product rising to about Sh110,000.

The updated national accounts, set to be unveiled this morning by Planning secretary Anne Waiguru, show that the contribution of real estate sector to Kenya’s gross domestic product (GDP) has more than doubled to 10.6 per cent from the previous 4.9 per cent.

Stellar growth over the past 10 years saw the real estate industry dislodge the retail sector as the fourth largest contributor to the economy even as traditional sectors such as agriculture, wholesale and financial services continued to diminish.

Kenya’s GDP — the market value of all goods and services that a country produces in a year — is expected to grow by a fifth to reach Sh4.5 trillion ($51.3 billion) from an estimated Sh3.8 trillion in 2013 with the release of fresh data technically known as rebasing.

Analysts expect the new data to dictate future investment decisions, projecting that banks and businesses are most likely to put their money in the property market in pursuit of higher returns from increased activity and growth in the sector over the past decade.

“The rebasing exercise offers banks insights into the emerging lending opportunities and identifies the growth sectors,” said Robert Bunyi, an analyst at Mavuno Capital.

READ: Kenya to unveil over 20pc GDP jump after rebasing

This means that the upward reweighting of the property market is expected to shift the focus of Kenyan banks from consumer lending to home loans and financing to purchase land and carry out construction to capture the ever-growing sector.

John Ngumi, director of investment banking at CfC Stanbic Bank, said sectors such as real estate that have acquired higher weighting should become the most attractive to investors. “The sector (getting) upward reweighting will look most favourable,” Mr Ngumi said in an interview.

The revised real estate figures will be good news to companies such as London-based PE firm Actis, Centum, Housing Finance, Home Afrika and UAP that are currently investing heavily in the sector.

Other sectors that have gained higher weighting with the review are fishing, manufacturing, electricity and water, transport and communication, and hotels.

The Treasury should, however, not expect the cost of borrowing to go down, even though a larger GDP gives Kenya headroom to increase sovereign borrowing and cut reliance on the local debt market, economists said.

“It is unlikely that the rebasing of the GDP will have a dramatic impact on Kenya’s cost of financing,” said Razia Khan, Standard Chartered’s regional research head for Africa. Ratings agencies have anticipated the rebasing,” she said, adding that the market has already factored in the larger GDP in its dealing with Kenya.

The new data, however, shows that agriculture remains the mainstay of Kenya’s economy despite its share of GDP dropping to 22.2 per cent from 25.3 in the previous estimates — a development that is attributed to a steady shift from the traditional agrarian economy to the service industry.

The financial services’ share of the GDP has dropped to 5.2 per cent from 5.4 per cent while the retail sector’s contribution has fallen seven per cent from the earlier share of 9.8 per cent.

The top three sectors — agriculture, manufacturing, and transport and communication — in aggregate account for nearly half or 45 per cent of Kenya’s GDP. The trio previously controlled 43.3 per cent of the economy.

Higher weighting of the real estate sector should also mean better tidings for cement manufacturers who will be looking forward to higher sales as they feed the growing real estate market that is now characterised by construction of shopping malls, office parks and residential estates.

The value of new buildings completed in Nairobi more than doubled to Sh55.1 billion last year from Sh20.6 billion in 2009.
Kenya’s cement consumption rose to 4.2 million tonnes from 2.6 million tonnes due to increased construction activities in the period under review, a growth of 59.7 per cent.

Cement use is a key indicator of the real estate sector activity given that it is an essential raw material for construction.
Broll, a Johannesburg-based property consultancy, says Kenya’s development of infrastructure, especially highways, is acting as a stimulus for real estate sector growth.

London-based private equity firm Actis is currently putting up a mixed-use development on the Thika Superhighway dubbed Garden City. The area already has two other new malls namely TRM and Mountain Mall.

Nextgen Mall is currently under construction along Mombasa Road near the Southern bypass interchange.

The Kenya National Bureau of Statistics (KNBS) kicked off the rebasing and review of the domestic accounts in 2010 aiming to present an accurate reflection of Kenya’s economy. The KNBS has now updated the base year used in calculating the GDP to 2009 from the previous one of 2001 — thereby giving policy makers and investors accurate set of economic statistics.

The new GDP figure, to be released this morning, will have expanded by 20.6 per cent, pushing the GDP per capita to Sh109,545 ($1,229) and placing Kenya in the club of middle-income countries.

The World Bank groups countries in three classes based on GDP per capita: low income as those with $1,045 or less, lower middle income from $1,045 to $4,125, upper middle income at between $4,126 to $12,745 and high income economies at $12,746 or more.

Ms Khan warned that the high GDP figures may see Kenya miss out on highly concessional, long-term interest-free loans and grants from the International Development Association (IDA) — the World Bank’s fund for poor countries.

“If Kenya’s low-income status is revised, such financing may not be available to it, despite the country’s very real development needs,” she said.