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Drop in cement sales points to real estate slowdown

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Workers at a construction site

Kenya’s consumption of cement dipped to 1.4 million tonnes in the second quarter of the year, pointing to a persistent slowdown of activity in the real estate sector.

National cement consumption stood at 1.5 million tonnes in the first quarter of last year, continuing a losing streak that persisted throughout 2017.

The decline in consumption was also manifest in the 15.7 per cent drop in the volume of imported cement and the eight per cent decline in importation of cement clinkers in the three months to March, according to the Kenya National Bureau of Statistics (KNBS).

“Similarly, the volume of imports of construction materials such as iron and steel bars, and rods declined by 4.9 per cent during the quarter in review,” said the statistics office.

Kenya’s cement consumption initially dipped in 2017 — the first time in 17 years – in line with the decline in construction sector demand.

The drop in consumption came despite the building of mega public infrastructure such as the Standard Gauge Railway (SGR) that is now in the second phase covering the Nairobi to Naivasha segment.

KNBS, however, notes that the overall industry performance has factored in SGR consumption, the decline may have been bigger without the large public sector consumption. “The sector’s growth albeit slower than that of the corresponding quarter of 2017 was driven by the ongoing public infrastructure projects such as roads and phase two of the standard Gauge Railway (SGR) as well as the continued development of buildings,” said KNBS.

Last year, the value of approved building plans fell by 22 per cent to Sh240.8 billion, from Sh308.4 billion the previous year. During this period, 6.2 million tonnes – or an average of 1.55 million tonnnes for every three months – was consumed or 8.2 per cent lower than 2016 consumption of 6.7 million tonnes.

Knight Frank, a real estate consultancy said in its Inside View Kenya 2018 update that tight liquidity in the market that came with commercial banks decision to lend more to the rather than to the private sector could hurt growth.

“Many overseas investors will buy with cash or get dollar-denominated mortgages at far better rates, but the lack of liquidity in the Kenyan property market is a major obstacle,” said Knight Frank Managing Director Ben Woodhams.

READ: Cement production, use fall in first half

Many commercial banks have been hesitant to lend to sectors they deem to be riskier below the maximum allowed lending rate drying up credit to private consumers.

The decline in consumption has seen some cement-making firms listed on the Nairobi Securities Exchange report less earnings forcing them to shed jobs.

Cement maker Athi River Mining shed over 700 jobs last year as it sunk into a Sh6.54 billion loss and a negative working capital position that saw its auditors cast doubt on its ability to continue as a going concern.

East African Portland Cement also posted a Sh1.47 billion loss, the first since 2014 while market leader Bamburi Cement saw its profit shrink by a third to Sh1.97 billion — making it the first time since 2013 that the company failed to grow its bottom-line.

In the real estate sector, home maker Home Afrika’s loss widened to Sh181.4 million in 2017 from Sh168 million the previous year – an outcome it blamed on elections and depressed credit market.

 

-www.nation.co.ke

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