Monthly Archives: April 2011

Real Estate Moment

The 13th edition of the Kenya Homes expo is going on at KICC Nairobi this weekend. Here’s recap of that and other real estate on-goings. It seems larger than last year with more properties on display, along with energy, interior finishing, communication, insurance and media companies as well as several mortgage banks. Also some properties advertised last year were still on sale.

Expo: Some notable property developments included;
– Trident Park in Langata (behind Splash/Carnivore) 4 bedroom (4br) , all en-suite homes that cost Kshs 15.5 million [Kshs 15.5M or $193,000] (Trident Estates)
– Diamond Park in South C which are 4br maisonettes that cost Kshs 12M (Diamond Park)
– Tamarind Meadows are 3br maisonettes located in Mlolongo/Athi River with prices ranging from Kshs .6.5m – 9M (Tamarind Properties)
– The 3rd phase of Greenspan Housing estate of 3br maisonettes in Donholm/Umoja that cost Kshs 8.5M (brochure says that some houses sod in phase 1 have achieve rental of Kshs 45,000 [$560] per month) (Greenspan Housing)
– Residential plots sold by Ndatani Enterprises in Kitengela can range from Kshs 500,000 – 900,000 ($11,000)
– Le Mac is a planned 24 story tower complex with apartments, malls, shops, offices, bank, restaurant, gym on Waiyaki Way, Westlands that was launched by the vice president a few weeks ago. Offices and showroom will cost 15,500 per square foot , while apartments that will include studios, 1, 2, 3 and 4 bedrooms will cost 16,500 per square foot – translating to Kshs 12.6M for 1br to Kshs 56M ($700,000) for a 4br duplex. (Mark Properties)

Financiers: at the Expo were the usual banks present including Housing Finance, Barclays, KCB, and Standard Chartered.
– Barclays loans start at 12% up to 20 years and 90% of home cost, or 70% of construction costs and they buy mortgages finance by other banks. A Kshs 10M loan taken over 10 years has repayment of Kshs 143,413, and over 20 years has monthly repayments of 110,039
EDITCBA: Mortgages are payable over 25 years, and (they say) you can accelerate and pay off an entire home loan without being penalized.
– KCB has mortgages up to 25 years and rates are 13.75% and finance 90% of mortgages for salaries people homes in urban areas, 70% for plots, and 85% for estate development. A Kshs 10M loan taken over 10 years has monthly repayments of 152,274, and over 20 years attracts a monthly payment of 120, 737
– Housing Finance had their Makao Homes which are pre-designed homes they can build for anyone with a piece of land and range from a 2br bungalow that costs 1 million ($12,500)(ideal for 1/16 acre) to 4br maisonettes ideal for ¼ or ½ acre that cost 13.3 million ($166,000). A Kshs 10M loan attracts repayments of 155,266 over 20 year and 124,352 over 20 years.

– Other finance from Houising Finance, includes plot purchase (70%), for investment groups (70%), for commercial office space/shops development (65%), as well as finance for incomplete or stalled projects.

They were joined by newcomers including;

– National Bank of Kenya
– CFC Stanbic who last week launched a 100% mortgage facility.
– I&M Bank – pay lesser amounts in initial years and higher amount in later years as your income grows (you think?), all loans have free credit card and free fire insurance. Loans are at 12, 14 and 16% and range from Kshs 2M -30M to finance up to 80% of property price with a maximum of 15 years. The brochure also indicates all the typical home closing costs – e.g. a Kshs 10M mortgage will attract valuation fee if 10,000, 1% on disbursement (100,000), processing of 0.5% (50,000), legal fee of 1% (100,000) for a total of about 3% (home buyers are advised to budget 5%)

Other: – The Sameer Business Park has started leasing this week; it initially looked like white elephant its now available through property agents Knight Frank .

Via @azthedance – This article by Brendan Barron titled Arrest this Development? points to some disparities in the sector such as;

– The country’s average wage is somewhere around $4,500 a year, but the average mortgage was more than 12 times that, at $56,000.
– Nairobi currently has no urban plan
– There’s also no real Building Code to which technicians can refer to ensure new homes meet standards. There are, simply, no enforced standards.

Edit: Here’s a nice series of articles in the Business Daily by analyst and columnist Carol Musyoka, first on Kenyans obsession with owning property and a follow up on the
investment risk of owning property, which has this paragraph.

Given where today’s interest rates are at say 15 per cent, an average middle income house costing Sh10 million, will require a monthly mortgage payment of approximately Kshs126,000 after the buyer puts down a deposit of Sh1 million or 10 per cent on the 15 year mortgage. This is not an amount that is easily payable by the average Kenyan worker and requires a great amount of sacrifice on the part of the buyer, especially where the rent for a similar house would be about Sh40,000 or a third of the mortgage payment.

The fact is that buying your own home is really not supposed to be an investment, rather it is a method of providing future security for yourself by having home ownership at the end of the mortgage period.

Queues make you think

This week, I spent a crazy morning at another queue, this time at the Kenya Revenue Authority (KRA) trying to pay a monthly tax. When I arrived there, the line was about 12 people long, which was a relief because sometimes you can find more than 30 people.

However that turned out to be a false hope because there was only one teller counter that was manned and serving customers, and at a very slow pace. We stood there patiently for about an hour, barely moving, as it dawned on us that some things were not right.

One old man in the queue went go get a supervisor since there was none in sight to complain to except a G4S security guard, handing out forms to be filled. He came back after half an hour to find us pretty much in the same position. He had tales of being passed around from supervisor to supervisor’s in the next building but he would not relent until he reached someone ‘senior.’

Willing, but frustrated taxpayers: Kenya is ranked no 162 in this PWC survey on ease of tax payments – a figure I disagree with. KRA has made it simpler for other taxes to be collected e.g. Pay As You Earn (PAYE/payroll) taxes are paid at commercial banks where the employer has an account – the cash goes to KRA’s account instantly (no 4 day wait for this cheque). Today, I wished they would extend the same for other taxes too so that people don’t have to comes to Times Tower (KRA headquarters).

There are similar queues for driver licenses renewals of either 1 or 3 years, though sometimes some of the stickers are missing, so you can only buy the ones available that day. There alao used to be more for annual vehicle license renewals (calculated on a vehicle engine size), but that was changed a few years ago and built into the price of a litre of petrol and diesel.

Staffing: This morning, the sole teller worked for about an hour by himself, next to six empty teller windows (which is a worse display of customer service than a certain large bank). It inspired camaraderie as we all shared battle stories from previous visits to the building.
– ‘This line is nothing, you should have seen the one last month’
– ‘The line was so long yesterday, I walked out and came back today’
– ‘I will train someone else in the office to come here next month’
– ‘There are so many unemployed boys, why not give them these jobs, if KRA is under-staffed’
– ‘They do about seven people an hour, I’ve counted…’.
and
– ‘The reason these guys are slow is women should do the job. Men can’t type into computers & process payments like women. If women were given these jobs, there would be no queues as they’d process taxpayers do fast’.

(So I jumped into Google and found this yahoo thread that answered that very query – and it listed counselors, coders, surgeons, child care, nursing care, as jobs that women can do better than men, but nothing about tax collectors)

Queue management: Banks and the government have data collected by their systems and HR managers to know how many customers they have in any month. It can further be broken down into which days and which hours they get peak customer traffic. Supermarkets know this and match their staff shifts to customer numbers, but it can be extended further. I was also at a bank hall this morning and it was completely empty, with no customers waiting to be served. Why? Probably because it’s the middle of the month and many customers, who are dependent on monthly paycheques have no need for their banks mid-month.

KRA likewise should anticipate dates like the 9th, 20th and 25th of each month will have peak volumes and deploy more staff to man front desk counters on these days, so they end up with long queues of frustrated small business customers and taxpayers.

Your Bank, Your Neighbour

Agency banking came of age today with launches of agency banking by both KCB (‘KCB Mtaani’ – translation KCB in your neighbourhood) and Co-Op (‘Co-op Kwa Jirani’ -translation Co-Op in your neighbourhood) which are the largest and third largest banks by assets respectively. They follow in the steps of Equity Bank who have had agency banking for several months

Why Agency Banking? If 3 of the country’s 5 largest banks with the largest branch footprints chose to go agency banking. Agency banking expands the reach of the bank about 100-200 branches to anywhere from 1,000 to 20,000 outlets through the agent model Speaking at an investor briefing last year, Equity Bank CEO James Mwangi spoke of the extra reach would bring for them and which signaled an end to the rapid branch and staff expansion that the bank had been known for.

Equity initially looked like they would partner with Safaricom’s strong M-pesa agent network (22,000 agents) for their banking extension, but that partnership seems to have hit a brick wall) and now the field is open to dukas, bookshops, and grocery stores, kiosks, hardware & phone sales shops, and others established shops especially in remote villages where banks are unlikely to open branches.

The shops must fit the criteria set by Central Bank of Kenya (CBK) for bank agents (more here) – including that they cannot be mutually exclusive. (Not being tied to one bank can be an opportunity for established village business owners to act as agents for several banks)

What can agents do for bank customers?
Co-Op: Cash deposits, cash withdrawals, school fees payments, utility payments, balance enquiry, issuance of mini-statements.
KCB: Deposit taking and withdrawals. In future, balance enquiries, loan repayments and requests for chequebooks & account statements.
Equity Bank: Deposit taking, cash withdrawals, as well as origination of account opening & loan applications.

Kenyan Guide to the Hague

A guest post

Arriving at Schipol, you can take a taxi to The Hague (around € 45) or for the budget conscious traveler, you can take the train (€ 7.90) to go to the Hague. Within The Hague, transport seems to consist of many, many cyclists, trams and cars. There are two bikes per Dutch person in the Netherlands, but despite knowing that the Dutch use bikes as the main way of getting around within the towns, it’s still a surprise to see all the people cycling to work, to the pubs, to the stores and pretty much everywhere.

When crossing roads, keep an eye out for the bike lane, the tram lane, AND the car lane. And you might want to obey the traffic lights as well, as the pedestrians also wait for the pedestrian crossing light to turn green before crossing, even in the absence of incoming cars. When being driven within The Hague, you might decry all the “wasted” driving lanes that are taken up by the bicycle lanes, but there is no overlapping from drivers into the bike lanes as the cyclists also seem to have significant cycling rights.

For accommodation in The Hague, there are a range of hotels to choose from. The Ibis hotel, part of a European chain is a pretty safe bet (€99 before tax), and is an environmentally friendly hotel, no frills hotel. Prepare for sticker shock for meals though as breakfast goes for €15.

You can get around even if you speak no Dutch, as almost everyone in the service and retail industry speaks English. Window-shop in the Noordeinde area which has really high-end shops located near the Noordeinde Palace. Make sure you soak in the old architecture while you’re there (Google says the Palace was built in the 16th century). The real shopping takes place in Grote Marktstraat where many retail electronics, clothing, shoes, bath & body retails chains have stores, and there are plenty of small shops that sell the distinctive blue and white Delft pottery.

To get the full tourist experience, take a day trip to Amsterdam which has great shopping and tourist attractions. The Van Gogh Museum and the Rijk Museum are must sees. For sightseeing and shopping, a good place to start is Dam Square where shops are flanked by waterways, and with tourists attractions like Madame Tussauds. Many of the international chains have retail stores in this area. Amsterdam isn’t, of course, Amsterdam without a visit to the Red Light District, so if you can, try and see that as well.

Biggest surprise about Holland? That the dikes aren’t brick walls that prevent the sea from flooding the country. They’re more miles and miles of mounds of earth. Oh, and this boy? He never existed as part of Dutch history. It’s an American children’s story!

More on the works of Vincent Van Gogh at Artsy.

NSE Nairobi Investor Briefs

new corporate activities at the Nairobi Stock Exchange include

British American Investments – a.k.a. British American a 46 year old company in the country now planning an IPO at the NSE. They are also embarking on regional diversification as a group, which is best known for its British American insurance (Britak) – but has since added British American asset managers (formed in 2005) and Britam insurance in Uganda.

In 2010 they had gross revenue Kshs. 4.5 billion ($56 million) (up from 3.9 B in 09) largely due to Investment & other income of Kshs 5.1 billion (09 was only 400k) and their profit before tax was Kshs 2.8 billion, compared to a loss of Kshs. 334 million the year before. This also included underwriting income in Kenya of Kshs 152 million (up from 80M year before)

They are aiming for the IPO in 2011 to finance their diversification into micro-insurance and bancassurance as well expansion to Tanzania, Rwanda and south Sudan. They are yet to obtain shareholder and capital markets authority approval. Group Managing Director Benson Wairegi said they have alerted the CMA, but are yet to submit documents until their shareholders approve the process

Kenya’s capital markets rules require 3 to 5 years profitability before a company can list, though @coldtusker disagrees with that saying smart investors should be allowed to decide a company’s prospects regardless of their recent profitability.

Other: – Their balance sheet grew to Kshs 25.2 billion ($315 million) up from 16.3B. Assets under management by British American asset management (BAAM) grew from Kshs 8 to 17 billion
– Expenses were up 8% compared to 16% for revenue
– Paid a dividend of 200M (Kshs 6.67 per share) up from 120M last year (Kshs 4 per share)
– Bank portfolio: they own 11% of Equity bank and 15.9% of Housing finance

TransCentury: Also up for possible listing is TransCentury which was founded by a Group of prominent Kenyan investors who expand into the limelight when they acquired East African cables in 2004. Since then they have taken stakes in Development Bank of Kenya, Kenya Power & Lighting company as well as Rift Valley Railways

Their 2010 highlights and 2009 detailed accounts show;
– High finance costs eating into profits and need to pay down debt
– Strong shillings bad for there profit 170m impact,
– Kshs 1 billion invested in 2009, down to 50 million in 09

Portfolio – Seem to manage regional diversification better than Olympia did and which Centum is now trying to do
– Quoted shares in Metal Fabricators (Zambia) 20%
– Unquoted in Rift Valley railways (34%) and Development Bank of Kenya

– In 2010, added Cableries du Congo (Congo Cables)
– Chai Bora Blended Tea (Tanzania) [Revenue of Kshs 714M, pre tax loss of 29M]
– Kewberg Cables & Braids [Revenue of Kshs 781m, pre tax profit of 44M]
– Tanelec (Tanzania) [Revenue of Kshs 772M, pre tax profit of 133M]
– Avery East Africa (Kenya scale) [Revenue of Kshs 226M, pre tax profit of 21M ]
– Participation in investment in funds include Kshs 200 million in Aureos (East Africa, South Asia, china), Helios (Kshs 350m) and Business Partners International (Kshs 43 million)

In anticipation of a NSE listing, they made moves such as:
– 10:1 share split in October 2008. Now has 263 million ordinary shares up from 20 million after bonus, split, and new issues
– Paid a dividend of Kshs 13 million in 2009 (DPS of Kshs 0.05). For 2008, it was 29 million, which was part paid in ’09
– According to the East African in Feb ’11, Transcentury shares were trade at an OTC market run by Dyer & Blair at Kshs 35 per share compared to Kshs 48 in 2010.
– Seem to manage regional diversification better than Olympia did and which Centum is now trying to do

Kenya Airways: Is likely to seek to raise capital from its shareholders this year on advice from their directors and CFC Stanbic who are their financial advisors.

Regional: In Tanzania, Kenya Airways is ceding a steak in Precision Air, which is seeking to raise almost $30 million, in an IPO, but indications are clear that Kenyans will be locked out as will other non-Tanzanians.

From Rwanda, we have the prospect of more share listings from two companies – Bank of Kigali and MTN Rwanda, and following in the footsteps of Bralirwa who’s IPO was open to all East Africans.