Covid-19: Impact of the Pandemic on the Real Estate Sector
As the pandemic effects are felt across the globe, crushing various sectors and employment opportunities, the real estate sector has not been left behind. The real estate sector has been hit in different ways, depending on the region and the asset class.
Measures by the government to reduce movements to reduce the spread of the virus have seen many tenants face liquidity pressures, with some tenants ending up deferring or ceasing contractual lease payments.
Before the pandemic struck, the real estate sector is one of the many industries which had shown signs of recovery from the previous year’s sluggish growth.
The sector since the first case was announced in March 2020 has been on a downward momentum majorly due to various factors, among them being lack of workforce and supply chain disruptions, lack of finance, and uncertainty about what to be expected after the new normal.
Most of the offices have remained closed since the government’s measures took effect, making building approvals slow as the city hall was closed. However, we expect this to resume as the President uplifted the lockdown yesterday, sixth July.
During this period, most developers have considered reserving their cash since the market liquidity is expected to decline, which has caused a significant reduction of construction in the country.
Real estate investors have had little to no collections as Lands Registry was closed; hence banks and mortgage buyers are not releasing funding.
The pandemic can be said to have caught many people unawares, and thus to navigate through the sudden changes was a severe challenge more so, financially. What does this teach the future real estate investors and banking sector?
After the first case of COVID19 was confirmed in Kenya, commercial banks were ordered to provide relief to the borrowers on their loans by extending the grace period by a year. The move was set to help cushion the adverse economic effects borrowers might undergo during this pandemic.
With many people being affected differently in the country, those who had purchased off-plan real estate on installment plans have been recording a slowed collection.
Funding to the real estate sector projects reduced significantly since the pandemic broke out due to general risk aversion during the pandemic. However, with the President’s new guidelines, we hope life will be back to normal; however, it may take quite some time.
With all the happenings in the country, the government has been working to save this vital sector from collapsing. The measures include; seeking to lower the Central Bank Rate (CBR) to 7.0% and reducing the Cash Reserve Ratio (CRR) by 1% to 4.25%n through the Central Bank to increase the available cash for on lending. This will go a long way in helping investor’s access funds in the country.
The government of Kenya has made a Kshs 53 billion available for the hospitality sector to access as soft loans hence stimulating the sector.
According to the Tax Laws (Amendment) Act 2020 amendment to the Retirement Benefits Act, one can now purchase a residential home with pension savings and be eligible for a mortgage loan.
The Business Laws Amendment Act of 2020 had also improved how land transactions are done in the country when various principal offices remained closed. With the Act, electronic signatures have been recognized as a valid mode of executing documents in the country.
With the current pandemic, we expect the real estate to be shaped with more changes to be determined by the duration of the virus. Even as the cases continue to rise, we do hope that The National Government will be able to use monetary and fiscal policies to sustain liquidity in the economy.
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