Kenya’s construction sector is projected to pick this year after a near two-year slump, architects now say, but concerns over high construction costs and taxes remain.
The slow down was a result of slow investment decisions after the Covid-19 pandemic, which was followed by the country’s general elections in August 2023, which saw investors hold back on spending in real estate projects.
According to the Architectural Association of Kenya (AAK), the sector is poised for a strong rebound this year, driven by the ambitious government affordable housing projects.
Private developers are also reported to be making a strong comeback into the market, with applications for projects approval on the rise.
The Status of the Build Environment Report by AAK, released on Tuesday, indicates the National Construction Authority (NCA) received a total of 8,154 applications for project registration, between January and December last year.
It approved 4,377 (53.7%) of the projects, the report notes. NCA also inspected 26,060 construction projects during the period.
Out of this, they suspended 18,192 (69.8%), of the projects due to non-compliance, but developers have a chance to improve issues raised and re-apply.
The total value of approved projects was Sh280.9 billion, the AAK report shows.
“2023 is positive as more investors are now coming back to have serious conversations on how we can kick start the projects or resume initial projects, so it is a very positive outlook,” AAK president Wilson Mugambi said.
A report by analytics and consulting company - Globaldata indicates that in 2021, the Kenyan construction market yielded $16.6 billion (Sh2.08 trillion), with an expected annual average growth rate of up to five per cent between 2023 and 2025.
The latest Kenya National Bureau of Statistics (KNBS) GDP data for the third quarter of 2022, together with leading indicators, show that the Kenyan economy registered strong growth in 2022.
Real GDP grew by 4.7 per cent in the third quarter of 2022, mainly driven by robust activity in wholesale and retail trade, education, electricity and water, and real estate sectors.
The rosy picture for the construction sector however comes with concerns of high costs, with prices and availability of essential construction materials like steel, paint, aluminium, cement and PVC expected to remain unreliable in Kenya.
The average price of a 50kg cement bag which was Sh550 in June 2021, went up to an average of Sh650 last year, with some regions in the country selling at a high of Sh750.
Locally, a kilo of steel rose from Sh100 to Sh180 late last year.
The Russia- Ukraine war accounted for the majority increase in steel prices in Kenya and globally.
Increase in fuel and transport costs have also impacted construction costs.
Transport industry directly influences construction material prices, as fuel prices go up so do material prices.
Another concern for industry players is the unpredictable tax environment in the country.
“What we are seeing now is that the new government has come in with a lot of energy and gas to tax. We need to look at the impact of these tax policies,”Mugambi said.
He said the private sector needs policies that will encourage investments.
"The government needs to incentivise the private sector and create a favourable environment for development of affordable housing. This includes intensive research on alternative construction materials that can be used across different regions in Kenya, “he added.
The affordable housing project, launched under the Big 4 Agenda, sought to meet the demand of housing by a supply of at least 250,000 units annually.
However, the project has not achieved its target with fewer than 14,000 units out of the proposed 500,000 units built during the first five years after its launch.
According to the 2022 State of Housing Report by the Economic and Social Rights Center-Haki Jamii, only a total of 13,529 units have been developed with minimal delivery in the social housing category.
COVID-19 and inadequate supply of affordable serviced land are some of the challenges that have hindered the success of the project.
Past housing initiatives have also been hampered high cost of construction, and long approval processes.
Meanwhile, the Nairobi County government is planning an audit of constructions in some of the city’s estates to ensure compliance, and tame cases of collapsing buildings.
According to the 2019 NCA Audit Report, there have been over 87 reported cases of collapsed buildings since 2015 in the country.
This had led to loss of lives with an estimated 200 people dead and more than 1000 people injured.
From the recorded 87 cases, 66 per cent of the buildings collapsed after completion while 34 per cent were under construction.
About 65 per cent were residential buildings, 25 per cent commercial buildings and 10 per cent were mixed-use developments.
The Nairobi Metropolitan Region has been the hotspot for these incidents with approximately 13 recorded cases of collapsed buildings in 2022.