INFLATION HARD HITTING THE REAL ESTATE SECTOR

The real estate sector is likely to slow down for the first time in the last decade following high inflation that has seen a slowdown in construction and flattening of property rent. According to a report by Hass consult the high inflation has led to an increase in construction cost with the sector registering an overall growth of 1.8% in the last quarter. Although the sales index for standalone houses and apartments registered marginal growth closing prices for upper end properties falling by 2%. According to the report developers suffered from reduced profit margins, with some reviewing their building plans to reduce cost whereas others are delaying completion.
‘Where completion rests on these extra payments, they are achieving some increases. But buyers are unwilling to commit from fresh to higher prices’ Farhana Hassanali, property development director Hass consult.
Landlords have also seen reduced profits with asking prices for rentals especially for townhouses dropping by 2.4%.Overall the rental market was almost static growing by a mere 0.1%. The report further states that although this might be good news for new home owners not in for investment purposes the situation might lead to a diversification of funds by investors to sectors with higher returns. Although statistics are still scarce on the rental prices for houses situated in the informal sector a senior officer working at the Kenya slum upgrading programme speaking on condition of anonymity told the Kenya broadcasting corporation that the default rate may have increased as the cost of living rises with no parallel income growth. In Q2 of 2010 building and construction sector registered the highest growth developing at 18% ahead of the financial sector at 16% and manufacturing at 6.8%.

EVALUATION OF THE BUSINESS ENVIROMENT FOLLOWING THE ENACTMENT OF THE NEW CONSTITUTION A YEAR AGO

Attracting foreign investments is the aim of every country with various incentives all over the place for anyone wishing to relocate or expand their business. In Kenya for example in a bid to increase bed capacity for tourist as the country targets 3 million tourist in the next 2 years the government has allowed any investor willing to invest in a hotel to import capital goods tax free. But tax exemptions and deductions are not the ultimate magnet. The regulatory framework in any country as well as how efficiently it is exercised is of major concern to any investor. To put this in perspective business involves credit. for example: wholesalers acquire goods on credit from manufacturers, while suppliers offer credit to retail chains. With credit comes defaults, hence any country that lacks the capability to dispense any such cases quickly and with just is not a favorable business location. In Kenya setting up a business involves certain legal requirements. Certain acts regulate and stipulate how this should be done. It all starts with the type of business one has in mind with the business name governed by the business name act while each sector has its own laws with banks for example having the banking act. In total there are up to 200 licenses that investors are expected to acquire from various government agencies. To issue the licenses is the national government and local governments. And with the enacting of the new constitution Lawyer George Kithi says the structure of local governments is likely to be taken up by county governments almost in the same structure. "The number licences are likely to remain the same with the counties taking the responsibility of local government with some cases it involving the use of the same offices." With that brief overview of just some of the licence requirements, of main concern to any investor is about other laws of the land such as those protecting individual property and nature of doing business
"Investors must understand that the constitution protects everyone in kenya and their property including foregn nationals. They should know that in no way will the government seize their property unless it is necessary and is such scenario due compensation will be given with the current market rates been utilized." George Kithi He explains that should all systems be functional and bodies like the toothless monopolies commission exercise its powers this would drive up competition and encourage investment based on quality products and not profit margin as witnessed especially in the oil sector. As seen in the monopolies commission Kithi says various government agencies actually act as an deterrent to foreign investment. Bureaucracy in various ministries and the decentralization of services also acts as a major let down. To this end the need for automation of services as seen in the attorney general’s office can lead to increased efficiencies. Due to the inefficiencies created by the bureaucracy as well as some motivated by the vice of corruption it is estimated that for one wishing to start a company in Kenya will take about 14 days to have all documents in place. Now compare this with other east African community member states especially Rwanda where the process can take as little as a single day. The role of the judiciary in expedition of cases cannot be over emphasized as in the past has cost the country investors whereas also leading to huge losses to locals and investors as well. One casing point is the Titanium case that is still in court years since the mining of the mineral was to kick of with the miner Tiomin of Canada incurring heavy losses after carrying out various feasibility studies just to name a few but also the residents of Kwale are yet to benefit from the project. In the long run Kithi believes that efficiency of the judiciary will determine how Kenya performs in attracting businesses as well as retaining them. He is however happy with reforms the institution is currently undergoing and hopes that the kenya chamber of commerce can get back to its feet to help in arbitration of cases without necessarily having to end up to court.

Commuter Railway set to revolutionize Nairobi

Following concession of Kenya railways operations to rift valley railways Kenya railways mandate was revised to include among others promotion, facilitation and participation in national and metropolitan railway development. To effect this Kenya railways is expected to develop commuter railway services in Nairobi metropolitan, construction of standard gauge railway from Mombasa to Kampala, construction of a standard gauge railway within the Lamu corridor which includes Lamu-Juba, Nairobi-Addis Ababa and development of railway cities around the railway stations at Nairobi, Mombasa and Kisumu. The main role of the commuter railway will be to especially decongest roads in Nairobi by transporting passengers hence expansion to new routes. The project is to be developed in 3 phases with phase 1 covering the core system which is over 100 kilometres. Among areas in focus include provision of services between Nairobi railway station and Ruiru, Embakasi village, Jomo Kenyatta and Kikuyu. Phase 2 covering Thika, Lukenya and Limuru will cover 70 kilometers. the third phase will be capital intensive and will include among others building of new infrastructure to extend services to areas with missing links which include Ngong, Kiserian, Ongata Rongai and Ruai totaling an additional 100 kilometers. Just the core system of phase 1 is expected to cost 16 billion although various adjustments have been considered to reduce cost. One such modification is the scrapping of a 120 meter tunnel crossing below Mombasa road that would cost a massive 3.2 billion and which was the most expensive part of the venture. The tunn el has been replaced by a flyover where Mombasa road will instead be elevated. The commuter service is expected to substantially reduce the amount of time it takes to access the city centre with for example a journey from Syokimau costing just 60 shillings and taking about 12 minutes from the current 90 minutes. For those heading to the airport it will then take another 5 minutes using a shuttle bus service before the line is complete. Just this station is expected to handle 20,000 once it opens in December saving the economy billions. The transport PS Cyrus Njiru is now challenging the private sector to invest on high capacity vehicles to ferry passengers from the railway stations. However a few challenges such as access to the Nairobi railway station which is currently a bus station and encroachment of the railway corridor continue to undermine expansion efforts ::UPS:: The core system is expected to be complete in June 2014.

Kenya to launch diaspora bonds

The Central Bank of Kenya is for first time targeting Kenyans living abroad in the upcoming infrastructure bond.

CBK intends to raise 36 billion shillings through the issuance of the infrastructure bond.

In a statement, CBK says it believes the avenue will offer the Kenyan Diaspora with an attractive investment opportunity as it is estimated they hold up to 160 billion in checking accounts around the world.

Modalities to facilitate the diaspora to participate in the Infrastructure Bond are being worked out.

Finance Minister In Uhuru Kenyatta in his budget estimates tabled last month said that there was a deficit of 7.4% of GDP or 236.2 billion shillings 119.5 billion of which would be sourced from the domestic market and 116.7 billion externally.

Of this 30% of the domestic borrowing or 36 billion shillings was to be raised through an infrastructure bond.

The decision to involve the Diaspora is also believed to have been fueled by improved remittances that hit 57.8 billion last year and were ranked the 4th largest foreign exchange earner in the country after tea, horticulture and tourism.

The last infrastructure bond issued by CBK was oversubscribed by 18% receiving 781 bids worth Sh37.4 billion against the Sh31.6 billion on offer.

Once the process succeeds, CBK says other long tenured government paper will also be available for Kenyans abroad.

"Once this first step is successfully accomplished, lucrative bonds such as the 30 year Savings Development Bond and other long tenured bonds will also be rolled out to the Diaspora" said CBK in a statement.