As Kenya steps into 2025, the real estate sector faces a complex interplay of opportunities and challenges, underscored by shifts in economic policy, infrastructure development, and market dynamics. The construction sector remains pivotal to Kenya’s economy, with residential developments leading the charge, but rising costs, regulatory hurdles, and broader economic pressures cast long shadows over its trajectory.
The real estate sector has experienced significant headwinds stemming from volatile fuel prices and their impact on construction costs. Historically, fuel prices in Kenya have been a primary driver of inflation, directly influencing the cost of building materials and project logistics. The government’s renewed commitment to managing fuel subsidies under the IMF’s structural reforms seeks to stabilize this vital input. The audit of the Petroleum Development Levy Fund (PDLF), expected by January 2025, could set the tone for fiscal discipline while ensuring a predictable framework for price stabilization.
However, policy shifts in the fuel pricing mechanism will likely have ripple effects across construction costs. Cement prices, for instance, rose by 10.7% in 2024, contributing to the broader increase in the cost per square meter for construction. As highlighted in the 2024 Status of the Built Environment Report, the average cost of construction in Kenya now ranges between KES 48,750 and KES 84,000 per square meter. Such inflationary pressures dampen affordability, even as demand for housing persists.
In 2024, gross loans advanced to the real estate sector saw a marginal year-on-year increase of 1.4% to KES 502 billion, while loans to the building and construction segment declined by 1.3%. These figures reveal a cautious credit market, partly influenced by the Central Bank of Kenya’s tight monetary policies, including a 0.5% increase in the Central Bank Rate (CBR) to 13% at the start of the year in February 2024. The slowdown in lending has constrained developers’ capacity to launch new projects or complete ongoing ones, further exacerbating the supply-demand imbalance in affordable housing.
Despite the challenges, there is a silver lining. Non-performing loans (NPLs) in the building and construction sector recorded a 2.4% quarterly decrease, attributed to easing inflation and a stronger Kenyan shilling in the first half of 2024. However, gross NPLs for the sector stood at KES 44.7 billion by Q2 2024, underscoring the need for robust risk management strategies by developers and financial institutions alike.
Kenya’s urbanization, driven by a population growth rate of 2.3%, continues to place immense pressure on urban infrastructure. According to the Status of the Built Environment Report, only 32% of counties have approved County Spatial Plans, with 40% still in the early stages of planning. This regulatory gap exacerbates issues such as unplanned developments, environmental degradation, and unsafe construction practices.
Moreover, the construction permitting process remains riddled with inefficiencies. The average approval time in Nairobi is 14 weeks, with delays often attributed to corruption and system inefficiencies. These challenges not only slow down project timelines but also increase costs, creating barriers for small- and medium-sized developers.
Kenya’s affordable housing initiative, a cornerstone of the government’s Bottom-Up Economic Transformation Agenda, represents a significant growth avenue for the real estate sector. As of late 2024, over 91,882 units were under construction, with a pipeline of 730,062 units. However, the slow pace of project delivery—only 1,189 units completed since 2022—underscores the need for innovative financing and public-private partnerships (PPPs).
Notably, the emphasis on green building certifications and smart technology integration offers a dual opportunity: enhancing sustainability while aligning with global trends in urban development. Counties such as Nairobi and Laikipia are leading the charge with new green building guidelines, reflecting a shift toward environmentally conscious construction.
Kenya’s real estate sector in 2025 will hinge on how effectively stakeholders address systemic challenges. Stabilizing fuel prices, expanding access to construction financing, and streamlining regulatory frameworks will be critical to fostering sector growth. Simultaneously, leveraging technology and embracing sustainability will position Kenya as a competitive player in the regional real estate market.
As the sector navigates these complexities, a balanced approach—focused on affordability, sustainability, and inclusivity—will be essential to unlocking its full potential and addressing Kenya’s housing deficit, currently exceeding two million units.
