Construction slows as difficulties bite

A mason at a construction site. The style of your house greatly determines the cost
Developers completing their buildings are under great financial pressure. PHOTO/FILE
The Kenyan construction industry slowed unexpectedly in the second quarter of 2015, weakened by a loss of momentum in house building, according to a new report by the Kenya Bureau of Statistics.

The KNBS’ quarterly report released on Wednesday showed that the sector recorded a decelerated growth of 9.9 per cent between April and June compared to a growth of 16.6 per cent during the same period last year.

Analysts reckon that the slowdown was mainly attributed to the rising cost of loans and a weaker shilling, which have seen private developers cut back on new projects due to the tough financing requirements.

However, the ongoing construction of roads and other public infrastructure projects across the country helped keep the sector afloat during the difficult quarter.

“Construction recorded the second fastest growth mainly due to the ongoing public infrastructure development,” says KNBS director-general Zachary Mwangi.

Higher levels of construction output have been recorded in every quarter since the first quarter of 2014, mainly buoyed by a rapid growth in house building activities in Nairobi and other major towns.

The report also showed that the economy grew by 5.5 per cent in the second quarter of the year, down from 6 per cent growth during the same period last year.

But despite the slowdown, cement consumption grew by 4.8 per cent to reach 459,022 metric tonnes during the period under review – thanks to the ongoing construction of the Mombasa-Nairobi standard gauge railway.

A difficult last quarter beckons the construction sector as the shilling has weakened further to the dollar compared to the second quarter levels and banks have already raised their credit terms.

The Central Bank of Kenya in July adjusted its key lending rate by 150 percentage points to 11.5 per cent, up from 10 per cent as a way of supporting the shilling against weakening further to the dollar.

The move has increased the cost at which commercial banks borrow from the central bank and lenders are already passing the cost to borrowers.

The Royal Institution of Chattered Surveyors and the Institution of Surveyors of Kenya has warned that the rising cost of loans will impact the borrowing capacity of most developers, denting the heavily loans-driven sector.