Top 4 Things to Master in Order to Profit from Real Estate During COVID-19

14 April, 2024 / Articles

The COVID-19 pandemic has negatively affected the real estate sector in the country as investors struggle to adapt to the new normal.

However, a few trends are developing in the sector to help real estate investors get the most out of their investments. Since the pandemic broke out, physical viewings have become near impossible making it difficult for sellers to showcase their product. So what new strategies are being adopted?

The Internet of Things

Understandably, neither sellers nor buyers want to face the risk of infection, as they adhere to social distancing rules which have seen most formal employees in real estate working remotely. In the real estate sector, the sellers will have to also work remotely and have prospective buyers view the property without physically visiting the site.

With the help of a modern 360° camera, a virtual 3D image of the property is created, which then allows a buyer to view the property as if they were there - all from the comfort of their own home. In Kenya, various realtors are utilising walk-through videos and real-time video viewings to offer a detailed tour to interested parties who want to buy, let or sell properties.

Some real estate investors have been able to negotiate and complete sales contracts between parties for the purchase, sale, exchange, or other conveyance of real estate, online without any need for personal contact. In this digital era, it is still possible to operate a real estate transaction if the government announces a total lockdown.

As witnessed in most countries under total lockdown, some lenders are accepting valuations that are either done through desktop, automation or drive by. Surveyor are not able to visit properties so traditional onsite valuations required before processing mortgages cannot be conducted.

Protection of Tenants and Homeowners

The pandemic has led to a decline in economic activities for small and medium-sized companies in the service, hospitality, and transport sectors as well as the self-employed. A lot of people in Kenya are currently struggling to meet their short-term obligations such as rents, loan interests, and, labour costs.

As witnessed in most countries across the globe, governments have come up with measures to dampen the pandemic’s impact on real estate. The main protective measures used include protection of tenants from eviction, mortgage relief, rent freezes, and rent subsidies.

In Kenya, banks had restructured a total of Kshs 360 bn in loans as at June 2020. According to the Treasury Cabinet Secretary, Ukur Yattani, the real estate sector accounted for Kshs 31.6 bn while building and construction accounted for Kshs 9.1 bn.

These measures by the government are aimed at reducing mortgage delinquency rates and foreclosures by lenders at a time when most tenants and homeowners are unable to pay their rents and service their mortgage debts.

In addition to restructuring of loans by most lenders, the reduction in Central Bank of Kenya (CBK) cash reserve ratio has also availed more funds to be channelled towards the real estate sector during this COVID-19 period.

As at May 15, 2020, eighteen commercial banks and two microfinance banks had been granted approval to access Kshs 29.1 bn freed from the reduction in CBK cash reserve ratio requirement in order to provide funding relief to borrowers.Data from the CBK shows that Kshs 3.6 bn of the funds have been approved for the real estate industry, the second-highest after manufacturing, while the building and construction sector received Kshs 143.9 mn.

The funds are aimed at injecting liquidity in the real estate sector thus stimulating activities either by supporting ongoing projects or enabling prospective property owners to be able to acquire property.

Buyers Have More Bargaining Power

Financial stress on households has reduced most Kenyans’ ability to afford a home, thus eating into the demand side of the real estate market. Additionally, it might make qualifying for mortgage loans more difficult for many buyers.

Economic hardship, particularly a negative income shock and high unemployment, can diminish the number of potential homebuyers in the market. According to a local real estate realtor, web traffic to real estate portals has significantly dropped as a result of numerous ongoing projects that have been halted, coupled with a slow uptake of new developments.

More so, most home buyers are now sceptical about the market and have put their buying plans on hold. This has created a reduced demand for real estate in the wake of the global pandemic.

The reduced demand for property has seen a correction in prices across various real estate themes such as the residential sector and the commercial office sector according to our Cytonn H1’2020 Markets Review report.

This provides an opportunity for prospective buyers with ready funds, as the reduced demand gives them an edge over sellers. Some local realtors are giving discounts of up to 6.0% for cash buyers in order to encourage people to buy property during this pandemic while others offer their clients personalized payment plans that are pocket friendly.

Increased Demand for Affordable Housing

As more households face difficulties in paying rents during this time, there will be a subsequent spike in demand for affordable housing as more people will think about purchasing their own homes. Last month, Kenya Mortgage Refinance Company (KMRC) acting CEO Johnstone Oltetia announced that KMRC was ready to start providing long-term finance solutions to participating financial institutions.

Home loan borrowers will get loans at affordable rates once KMRC obtains a license. This may lead to an increased uptake of mortgages for Kenyans who initially wanted to purchase property but couldn’t due to lack of cheap financing from local primary lenders. There has always been demand from the middle and lower income segment and it is expected to increase post COVID-19, as fence-sitters will now want to buy.

This, coupled with the expected operationalization of KMRC is set to see increased demand for affordable housing developed by the National and County Government or private developers.

In Conclusion

Although the severity of the effects of the pandemic on Kenya’s real estate sector is still unclear and developing each day, the overall impact will be substantial and will depend on its duration and measures that both the National and county governments, organisations, and, individuals will take to mitigate its adverse effects.

However, with real estate prices projected to continue on a downward slope, if your finances are where you want them to be, then you could find yourself in an amazing position to become a property owner.

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