The real estate sector slowed down in the nine months ending September 2011 as the high cost of building materials and the weak shilling took a toll on Kenya’s economy.
Data from the Kenya National Bureau of Statistics (KNBS) shows that growth in cement consumption slowed down to 12.5 per cent in the last nine months compared to an expansion of 15.7 per cent the same period last year.
Cement consumption between January and September this year grew to 254.600 tonnes from 226,100 tonnes last year.
This represents a three per cent deceleration compared to the 15.7 per cent growth seen between 2009 and 2010—from 195,400 to 226,S100 tonnes.
Mr Kephar Tande, the managing director of East African Portland Cement Company (EAPCC), said this was as a result of the slow down in private investments by property developers leaving urgent public projects as the key drivers of cement consumption.
“Sales in the cement subsector have been protected by the ongoing infrastructure projects otherwise the tough price competition would have hurt our bottom lines,” said Mr Tande.
He said the weak shilling and high raw material cost in the last nine months were largely responsible for the slow down in activities in the market that has been a key driver in the growth of the Kenyan economy.
Investors said the current high interest rates could further hurt activities in the sector as property developers shy away from costly borrowing.
This means that property developers, artisans, manufacturers and property financiers will lose out if the current liquidity squeeze is maintained.
Firms such as EAPCC, roofing sheet and cement maker Devki Group and paint firm Crown Berger said their sales this year have slowed down compared to last year.“Our sales gone down to 10 per cent as opposed to 25 per cent last year since we have been forced to increase our prices three times this year,” said Mr Rakesh Rao the chief executive of Crown Berger, a listed paint manufacturer.
The production of galvanised sheets this year, however, grew faster compared to last year on what producers attributed to increased demand in the export market. Mr Raval Narendra the managing director at Devki Steel Mills, the galvanized roofing sheets maker, said sale of roofing material slowed down in the Kenyan market and most of the demand is now coming from the regional markets.
“We have seen our sales of galvaniSed iron sheets reduce by 15 per cent, we have however been selling more to South Sudan,” said Mr Raval.
He said the new construction projects in countries like South Sudan have boosted exports adding that only the recovery in the Kenyan shilling and a reduction of raw materials costs could cut production costs.
Galvanised iron sheets production rose by 37 per cent in first nine months of 2011 to 208,000 tonnes from 151,000 tonnes which is a much faster growth than the 8.6 per cent seen in 2010.
Loans to the real estate increased seven per cent in the third quarter of 2011 to Sh140.5 billion from Sh130.5 billion creating more headroom for growth in the sector.
However the recent increase in lending rates by commercial banks in the last quarter of 2011 could see loan uptake slow down and hurt demand for construction materials especially for housing projects.
The high cost of loans will also translate into high borrowing costs to the government which will slow down state funded construction projects.