Cytonn Real Estate, the development affiliate of Cytonn Investments, has released their FY’2020 Markets Review. The report highlights the current state of the real estate sector in terms of uptake, rental yields, capital appreciation, and hence, total investor returns. According to the report; in the residential sector, apartments recorded average total returns of 5.2% in comparison to the detached average of 4.2%: the retail and commercial office sectors recorded declines in rental yields to 7.5% and 7.0% in FY’2020, from 7.8% and 7.5%, respectively in FY’2019. The land sector recorded an overall annualized capital appreciation of 2.3%, indicating that investors still consider land as a good investment asset in the long term.
“The main challenges facing the sector during the period under review were; i) reduced revenue due to slow market uptake and downward pressure on prices and rents, ii) decrease in the value of building approvals for the first nine months of the year to Kshs 120.8 bn compared to Kshs 176.5 bn recorded over a similar period in 2019, iii) business restructuring with some firms downsizing, iv) constrained financing for developers, and, v) the existing oversupply in the commercial office and retail sectors, with a surplus of 6.3 mn SQFT and 3.1 mn SQFT, respectively,” stated Fidelis Wanalwenge, a Research Assistant at Cytonn.
Nevertheless, the performance of the real estate sector was cushioned by; (i) the government’s continued focus on affordable housing projects to serve the middle and low income earners with the aim of increasing home ownership, (ii) operationalization and licensing of the Kenya Mortgage and Refinance Company, (iii) introduction of the Land Information Management System (LIMS) in April 2020 aimed at eliminating fraud and enabling digitization of processes at the lands ministry, (iv) improvement of infrastructure with ongoing select projects such as construction of the Nairobi Expressway, and, (v) easing of travel bans and restrictions in Q3’2020 coupled with the government’s stimulus package such as post-COVID recovery funds, intended to enhance the recovery of the hospitality sector.
The residential sector recorded a decline in performance with average total returns coming in at 4.7% from 6.1% recorded in 2019 with the price of units correcting by (0.2%). Detached units in Rossyln and Ridgeways recorded the highest returns at 6.3% and 6.1%, respectively, while apartments in Thindigua and Syokimau recorded the highest returns at 7.5% and 6.9%, respectively.