Risky investments in Kenya’s real estate and investments market

Cytonn Group Chief Executive Officer, Edwin Dande

There has been slow growth in Kenya’s real estate over the past few years. This situation has worsen following the current tough economic situation in the country, many layoffs, constrained credit access to both buyers and developers, uncertainties in building approval laws, and a weakening purchasing power among potential buyers.

A recent data by Kenya Bankers Association (KBA) seen by 254News indicates that there has been very minimal growth of 2.78% in the sector.

While releasing the banking lobby’s house price index at the middle of this year, Jared Osoro, KBA’s head of research and policy observed that there was a price decline during the first quarter of 2019 while indicating that “The sustenance of a general trend observed since the second quarter of 2018 is seen as tentative, and could be a pointer to a depressed market if sustained,’’

Real estate has been one of the country’s fastest growing sectors in the last 15 years, with returns from property outpacing equities and securities. The sector has, however, suffered slow growth in sales and rental prices recently due to a huge stock of unsold units and oversupply of properties thus surpassing the demand.

254News has learnt that it’s this depressed Kenyan housing market that has forced Cytonn PLC to offer huge promotions in blogs, mainstream media and social media to entice unsuspecting buyers with freebies and lower down payments. Some of these PR stunts involves cutting down the prices by a percentage thus angering earlier buyers who paid higher prices; an image of a well-managed company and photos that hoodwinks potential buyers.

According to data by central bank of Kenya (CBK), real estate recorded the highest growth in non-performing loans in the first quarter of the year, this has resulted to the rise of the asset seizures by many lenders.

A loan is considered non-performing if it remains unserviced for more than three months so they say.

CBK reported that non-performing loans (NPLs) in the sector rose by Sh6.1 billion (15.8%) in April-June to Sh44.4 billion compared to the previous quarter as property developers outpaced manufacturers (11.7%) and traders (7.3%) in growth of default on loans. Cytonn continues to get funds directly from individuals and institutional investors as opposed to going through banking sector intermediaries irrespective of the frustrations these group of investors are left to go through in this tough economy.

Cytonn has subjected many of its customers to untold suffering. They do a lot of PR only for their unsuspecting buyers and investors to lose their properties to creditors. There are so many repossessed homes, properties that are being sold off cheaply across the country. We understand that there is general financial difficulties but a bigger percentage has been fueled by cheap PR stunts, promotions.

If your monies are not looted from state coffers but borrowed from banks or earned by the sweat of your brows then if you have to buy property in Kenya, Cytonn is not your ideal seller because sooner or later, your sweat may be watered down as you die slowly through depression.

It is the same PR that forces real estate firms to look for environmentally unfriendly locations in the guise of ’leafy suburbs’ to build your ‘dream home’. Cytonn is deeply in this rat race, flouting environmental and urban laws with impunity and bribing the authorities not to demolish such structures. The Situ Village, a Cytonn development, which sits in a very serene environment in Karen is subject of an appeal to the National Environment Tribunal – by Karen and Langata District Association- and it is said Cytonn can construct anything except a boundary wall.

The environmentally unfriendly Situ village by Cytonn PLC

In February, they stripped a section of the riparian area of the sensitive Mbagathi River. Cytonn fraudulently acquired an area of around 7,500 square metres. The Water Resources Authority has visited and 254News trust that Cytonn will be brought to book soon over this. In fact it’s a matter of time.

Furthermore, 254News can authoritavely confirm that CIC, Britam PLC and I&M Bank PLC are already selling properties in Nairobi’s satellite towns of Kiambu and Kajiado counties. And according to the reports inside the Cytonn’s already concealed 2017 financial year statements, Cytonn has properties in Kiambu County namely The Alma, Taraji Heights, RiverRun Estates- where the greatest possibility for loss is. Banks have already moved to auction properties in these areas, fearing that lowering prices would lead to write offs and losses.

This auctioning craze can be seen in one of the biggest mortgage lender, Housing Finance Company of Kenya (HF) which has put Ksh2 billion clients’ properties to auction, sending distress in the real estate sector. Majority of the 54 properties that are on sale in Nairobi and its environs are standalone houses and apartments whose reserve prices range from Sh3.4 million to Sh300 million, the Business Daily reports. HF was also recently sued and the clients won, HF is therefore being sked to pay Sh1.2 billion as compensation for the person whose house was auctioned illegally in 2002. This Kenya real estate market is not lucrative s Cytonn would like you believe.

Over the week Cytonn cancelled its public listing plan citing the continued depressed performance of company stocks. “We’ve decided to pull back given the equities market is not that vibrant. From our tests, the market is not willing to pay what we would have liked,” CEO Dande said. However, the truth is that Cytonn PLC’s current GCR rating implies an 83% chance of bankruptcy in 3-5 years.

Most Home owners such as expatriates are sensitive to cost since they have housing budgets, beyond which they must seek approval from their head offices for extra rental expenditure.

Cytonn has allegedly been taking advantage of this group since they have been moving away from high-end houses as bungalows, maisonettes, and townhouses to cheaper apartment unfortunately they are fleeing the country en masse. Their newly finished CySuites Apartment Hotel, the latest offering under its Private Equity arm also looks to attract the same caliber of people in this depressed market and this is a no-brainer that that too will suffer many losses in this depressed economy. Experts say CySuites, which was launched in early this month can only manage to perform up to around March 2020 and then feel the heat of the lack of clients.

CySuites apartment

At a time CIC is selling 712 acres of land and exiting the property development business; Britam PLC exiting the real estate development business with plans to auction properties in Upper Hill; the Athi River’s Sunset Boulevard estate is in the red as I&M Bank plans to auction 204 units to recover a KSh 2 Billion debt investing in it does not require rocket science to know that Cytonn PLC would be the riskiest business ever.

Real estate in Kenya looks rosy but that is further from the truth, the money used might as well come from public coffers; funded by the runaway corruption. Don’t stress out, just don’t buy Cytonn or any other deals. The message is out there. See how housing Saccos such as Banda Homes (we have data on this and will unleash later) are struggling to sell, they keep on changing names in order to dupe clients. It is a sinful rat race which Kenyans must beware of.

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