Robust infrastructure development has over the last five years
created an unprecedented construction boom in Kenya. Indeed, the housing
sector has grown so much so that the Central Bank is now concerned that
the sector is being financed by dirty money. In January, Central Bank
governor Prof. Njuguna Ndungu announced that the bank would conduct a
survey to ascertain the source of the money behind the boom.
The governor’s concern was that the high level of activity in the
housing sector did not match the low level of home purchase borrowing.
According to the Kenya National Bureau of Statistics (KNBS), the
construction industry generally recorded the slowest growth in the last
quarter of 2012, expanding at only 0.6 per cent as compared to a growth
of 3.6 per cent in 2011. This was attributed to high bank interest rates
as most builders rely on credit for financing.That notwithstanding,
Kenya’s 3.4 billion dollar real estate industry is one of the fastest
growing and most lucrative in the Eastern African region. Developers are
now focusing on homes for middle income and low income groups,
following a season where investors burnt their fingers in an oversupply
in the high-end apartment market. Most of these housing projects are
concentrated along the corridors of major road developments and in old
dilapidated housing units built in the colonial era.
For the small investors, these projects have provided a myriad of
investment opportunities. The newly-commissioned Thika superhighway, for
example, has given rise to thousands of housing units from investors
who saw its potential due to easy accessibility to the city centre and
connectivity to other parts of Nairobi and its outskirts. Timber
suppliers, ballast and sand depots and hardware shops dominate the
shopping centres that dot the highway.
Hesbon Mwangi is one of those small investors for whom the
construction boom has been a Godsend. In company with two of his
brothers, he runs two hardware shops and a sand and ballast supply
business along Thika road, as well as a timber supply shed in Ngong’
where he started eleven years ago. Mwangi says he was down on his luck
when he parked his old truck at a shopping centre at Ongata Rongai in
Ngong’ where there was a lot of housing construction. He was hired to
transport building materials for different developers, and while at it
discovered there was a lot of money to be made by trading them. Soon
after that, his brother provided start-up capital with which they set up
a timber yard on the outskirts of Ngong’ town.
In 2008, Mwangi noticed the high level of building activity going on
in the Roysambu, Kasarani and Kahawa West areas and set up two hardware
shops in Kahawa West and Kasarani to take advantage of the construction
boom. He stocks cement, iron bars, ceramics, roofing materials, nails,
tiles, pipes and he stocks according to demand. To maximize his profits,
he teams up with other shop owners to buy materials such as cement and
tiles from manufacturers in bulk so that they are cheaper.
“The good thing about the business in these areas is that it is not
large companies but mainly individuals building houses to rent out.
Unlike big construction companies, they do not have regular suppliers,
and they tend to source the materials from near their building sites to minimize transport costs,” Mwangi explains. He says cement is so far his
fastest moving supply, and he can sell from between 70 to 150 bags a
day.
The middle- and low-level income housing market is in no danger of
drying up soon. According to the KNBS, Nairobi City Council approves an
average of 320 building plans per month. That number is however nowhere
close to satisfying the demand for housing units in Nairobi, which
stands at 250,000 units against a supply of 60,000 units annually.
Improved road networks have eased that problem somewhat as the
construction boom spreads to the outskirts where it is now increasingly
easier to commute from.
According to investment advisers, the construction boom provides
opportunities galore for investors, even with little start-up capital.
Individual opportunities exist for investment in cement blocks making, stabilized earth brick making and machinery leasing services. These
machines include trucks, asphalt mixers, bulldozers, compactors,
concrete mixers, concrete pumps, cranes, excavators, loaders, concrete
saws, concrete trucks and concrete vibrators among others. Hardware
shops are also an appealing and lucrative option. Among the products
that are in high demand are cement, marble, granite, tiles, plywood,
timber, furniture, steel, doors, flooring, stone, sandstone, limestone,
slabs, faucets, sanitary ware, glass and pipes.
On a larger scale, the vibrant construction trend has seen major
investors rushing in to tap into the profits. A high demand for steel
has precipitated plans for steel plants worth millions of dollars in the
country. The government-owned Numerical Machining Complex plans to set
up a 62.5 million shillings steel plant in Athi River, while locally
owned Devki Steel Mills, which already owns plants in Athi River and
Ruiru, plans a 175 million shillings plant in Kitui. At the same time,
Korean Posco Steel, the third largest global steel manufacturer, plans a
3.7 billion dollar investment in a steel plant in Kenya.
Mantrac, the sole distributor of Caterpillar brand of machinery, has
injected 160 million shillings to expand its warehouse in Nairobi’s
Industrial Area and plans to invest another 24.6 million shillings to
expand its Nairobi facility. Vigorous infrastructure development has
provided a big market for earth movers and heavy diesel generators.
Major government and private construction projects on the pipeline
include the construction of LAPSSET cluster of projects that include the
Lamu Port, the highway that will connect the port to South Sudan and
Ethiopia and a pipeline that will run along the highway. Others include
the expansion of the Isiolo airport, the relocation of Wilson Airport to
Ruai, the Lake Turkana wind power plant, Konza city which is dubbed
Africa’s Silicon Valley, as well as the Tatu city in Kiambu area, among
others.
It is estimated that Kenya’s infrastructure construction industry value will double between 2010 to 2015.
No comments:
Post a Comment