Building sector growth slows down during the first half of the year

By Ben Kinyanjui

Growth in the multi-billion shilling building and construction industry slowed down during the first six months of this year due to high inflation and weakening shilling.

Housing minister Soita Shitanda says construction industry hit by high inflation rate and weakening shilling

Housing minister Soita Shitanda says cement consumption that is a key indicator of activity in the sector declined by 6.5 per cent to 256,326 tonnes in June compared to 274,073 in June last year.

“Our analysis say high inflation rate and a weak shilling may force builders to postpone their projects leading to a decline in demand for construction materials,” says Mr Shitanda.

“Recent statistics indicate that the number of approved building plans by the Nairobi City Council in first eight months of 2011 dropped by 9.7 per cent to 2171 from 2407 over the same period last year.”

The minister says the trend is expected to persist until inflation is tamed and the shilling gain against the major world currencies like the US dollar, Euro and the British pound.

Analysts however say a slow down in the sector would affect other sectors of the economy due to the forward and backward linkages including employment creation.

“This is why we must urgently look for ways to cushion ourselves since the construction industry accounts for five per cent of Kenya’s GDP and employs about one million people with an estimated annual wage bill of Sh3.2 billion,” he says.

On mortgages, the minister says potential home owners are unable to access the funds due to lack of access to long term funds, low incomes, high credit risks and high interest rates.

According to a study report by the World Bank and the Central Bank of Kenya (CBK), less than 10 per cent of Kenya’s urban dwellers can afford a mortage while rural incomes are too low for a mortgage market to develop.

The report says about eight per cent of the urban population would be able to afford a mortgage loan, a figure equivalent to only 3-4 per cent of the population.

It further say only one per cent of Kenyans earn more than Sh2.7 million annually and another four per cent earn between Sh1.8 to 2.7 million.

“This means that over 50 per cent of the population will not have access to the mortgage market at all unless deliberate measures are taken to support the sector,” says the minister.

The minister also decries the high interest rate charged on mortgage saying the average mortgage is about Sh3.2 million paid over 15 years at 14 per cent.

He says the rates can be reduced by improving efficiency and offering longer term mortgages.

“Increasing access to mortgages would help not just higher income earners but also meet the needs of the majority of the low income population whose access to mortgage may not have been possible under the prevailing arrangement,” he says.