The year 2021 is set to be a defining year for Kenya's real estate market following a disastrous 2020 occasioned by the Covid-19 pandemic and its negative effects on the sector.
As early as May 2020, the commercial property space in Kenya witnessed a 68% decline in office space absorption during the first quarter of the year.
The work-from-home directive employed to curb the spread of the virus has led experts to project a further decline in demand during the first quarter of 2021.
The government and health directives in place; social distancing directives, travel restrictions, curfews, and county lockdowns have all affected the different property sectors - retail, commercial, travel, hospitality, and leisure.
"If this pandemic continues, in the mid to long-term, employers may take necessary measures to minimise overheads by downsizing or foregoing their office spaces," reads an excerpt from a report by Knight Frank Kenya, a real estate firm.
There has been an increasing trend of landlords and tenants negotiating flexible payment plans where possible, as cash flow is currently greatly affected. This trend is expected to carry on in the new year.
With the government announcement that all taxes are to revert to their normal rates as of January 1, 2021, as well as the introduction of new ones, Kenyans are expected to be hit even harder in terms of levels of disposable incomes.
Real estate development is a capital intensive venture that mostly needs huge cash injection.
The economic effects of the pandemic have seen most property developers suspend their projects while others grapple with their credit facilities.
In June 2020, the Central Bank of Kenya (CBK) announced that the value of non-performing loans (NPL) had hit Ksh366 B, a 13-year high.
Coupled with the free-falling local currency that traded at Ksh111 to the US dollar on December 21, the economic outlook of Kenya's real estate industry is cast in doubt.
The aftermath of this financial quagmire is that few properties will be put up in the market throughout 2021.
As for the residential space projections, the nationwide housing deficit standing at 200,000 units annually and an accumulated deficit of over 2 million units.
However, the pandemic has seen hundreds of thousands of Kenyans struggle to raise the rent. As a result, some have renegotiated terms with their landlords as others have resulted to relocating upcountry to their ancestral land.
This has resulted in a boom in available residential spaces in most cities and low demand due to the effects of the pandemic such as mass layoffs.
A survey conducted by the Kenya National Bureau of Statistics in June 2020, showed that for every 10 families, 6 had their breadwinner unable to provide for them due to the pandemic.
A worrying 9 out of 10 respondents stated that they were uncertain as to whether they would be a job to return to once the situation in the country normalized.
The reduced income is what saw a majority of Kenyans unable to meet their rental obligations. To compound the matter, as things got worse the report details that only 0.7% of the respondents attested to having received waivers from their landlords.
This expected to carry on during the first quarter of 2021, as the national government tries to find a way to inject some life into the economy.
Although the severity of the effects of the pandemic on Kenya’s real estate sector is still unclear and developing each day, the overall impact will be substantial, and still ultimately depends on its duration and measures that governments, organizations and individuals are taking to mitigate its adverse effects.
A recurring trend is opportunistic buyers/tenants are citing the current situation as a reason for placing lower rents or purchase offers, hoping to meet distressed property owners to get a “good deal.
Transaction levels are expected to fall drastically because of the wait-and-see attitude being adopted by prospective buyers and investors.
