Category Archives: Renaissance

Real Estate Moment: Ghana Cities, Old Taxes, & Pricey Mortgages

Ghana Cities: Last weekend, in Accra, the Renaissance Group launched two new cities that they plan to represent the future of urbanization in Ghana. The cities will be mixed-use areas where residents will live work and play and are in the same vein as Tatu City that was launched in Kenya, but which has been embroiled in a shareholder court case that has affected the pace of the project. The concept of new cities that Renaissance is planning in Ghana, Kenya (Tatu on 2500 acres for  70,000 people),  Zambia (Roma park) and the Democratic Republic of Congo (Kiswishi on 6900 acres in Lubumbashi to break ground in 2012) are based on some harsh realities:

  • That African cities are fast-growing (there are now 52 cities with over 1 million people), attracting rural migrants in search of employment and opportunity.
  • There is a shortage of housing that is quality or decent, and many city developments are unplanned.
  • Also, the infrastructure in many of these cities is lagging  and authorities will not be able to supply the services or utilities that residents need to have, while residents are facing ever-longer commutes.

The two Ghanaian cities are King City (located 10km from Takoradi harbour in North Akase area) which will be built over 10 years in phases to house 90,000 people and Appolonia (located 30km from Accra and 20km from Tema Harbour) which will have retail and commercial developments on 2000 acres to house 88,000 people. Appolonia which is now having water & road development will break ground in 2013.

With both cities, local communities are investing their land in the deal. They are not selling, and remain as equity partners with a stake to get a return on their undeveloped land and create employment for the youth and Renaissance team estimates that Accra itself will need another 5 – 6 cities to absorb its fast growth. Both the cities will have high, medium, and low-cost housing units and as the local mortgage continues to develop, the Renaissance team expect that most people should be able to afford homes. Ghana now has mid-market mortgages accessible over 10 years for about 80,000 Cedi’s (~$40,000 or Kshs 3.3 million).

Other mega real estate developments, blogs & articles

Tips: Nahinga blogs about three real estate investing lessons from the Accra Mall project, that began in the early 1970’s namely

  • (Speculate)/purchase real estate in the direction that a City can grow towards.
  • Use professionals and maintain a high standard of quality.
  • Have an exit strategy

Garden City: The real estate sector in Nairobi is attracting more PE interest, and Actis’ portfolio includes ten institutional quality assets in seven countries in sub-Saharan Africa. Following in that model, equity firm Actis and partners including Game are to develop Garden City  which will include homes, an events arena, and the largest retail mall in East Africa. It has already attracted MassMart from South Africa and it will break ground in December 2012. 

Other Mega project opportunities:

Railway prime real estate: The Kenya Railways Corporation plans to develop 385 acres of prime real estate land in Nairobi, Mombasa and Kisumu, and is seeking investors to build hotels, residential housing, light industries and shopping malls.

Kisumu Floatel: A project is seeking investors to establish a luxury passenger vessel as a 5-star floating hotel on Lake Victoria that will accommodate 80 passengers.

Cautionary Tale: But sometimes mega projects can go wrong like this ghost city built by Chinese investors in Kilamba, Angola.

Taxation Time: The Kenya Revenue Authority has published some recent notices about taxation of rental income and other income from real estate. While collection of value-added tax (VAT of 16%) has been observed in the commercial building sector, some residential owners have ignored that, while others have not been aware that they are also supposed to pay income tax that graduates from 10% on net rental income of up to ~122,000  to 30% on all rental income over ~Kshs. 466,000 ($5,600). There is also “other” treatment for non-residents, partnerships, estates of deceased landlords and Kenyans living in the diaspora, as well as tax incentives available for rental income on real estate investment trusts (REITs)  and on low-income housing projects (less than $20,000).

Nairobi Real Estate Price Index: Hass Consult have just released their second-quarter report on housing price trends.  They applauded the recent lowering of the Central Bank CBR rate (to 16.5%) as they noted that the impact of high-interest rates will continue to be seen in a slow down in new building amid the high finance costs. They also noted that, while the pace of building in Nairobi is at a peak, it’s still a fraction of the housing demand, and while projects are coming to fruition, new ones are not being started as people who would be buying homes are instead staying in rental properties longer. The release of the report was sponsored by The Mortgage Company, a mortgage brokerage firm who also released a mortgage rate sheet for consumer comparison and which showed I&M bank had the lowest mortgage rates of 18%, while Equity, CBA and Family Banks had the most expensive at 24%.

Mortgage Chat: The Kenya Bankers Association which is turning 50 this year, just re-branded and launched a new outlook and new website. One of their new outreach programs will be a weekly mychat session with a bank CEO, and in a few weeks, they will feature Frank Ireri, the Managing Director of Housing Finance bank, who will chat about mortgages.TV Time: Finally, there will be a new TV show coming to NTV in Kenya that will be devoted to real estate and will air on Sunday afternoons in a few weeks.

I-banker talks politics

Jeff Koinange has been running a show called Capital Talk on the new K-24 channel in Nairobi. It’s a 1-on-1 interview session, usually with politicians, but occasionally with business leaders. He seems more comfortable hosting these show than he did from say from upriver Nigeria with the rebels on CNN.

Last night he had Maina Mwangi, the CEO of Renaissance Capital, to talk about the future of investment banking in Kenya, impact that the political stalemate is having on the economy, and other issues

Some of Mr. Mwangi’s comments

  • Renaissance is different from other investment banks such as Morgan Stanley (who are doing the Safaricom IPO) because they are here to stay. They have offices here; will have 50 staff, all East African, no expatriates here.
  • The politics must be fixed; we can’t be having upheavals every five years where lives are lost and property destroyed unnecessarily
  • Impact on the economy is serious (i) tourism collapsed, at least for the next three years (ii) impact on transport sector has not been fully appreciated (ii) banks not hit yet, but will take a few months (iv) NSE is a sensitive indicator of the economy (There are about 1 million shareholders and the market was down 15% in 3 weeks) as people buy shares as they are future profits of a company (v) forget about 8% growth this year.
  • Investors are worried, which is ok, but if the politics is not fixed, then they’ll be panic, which is bad
  • Solutions for this year: (i) one was the Safaricom IPO which still can happen, and will give the government some breathing space and enable the budget deficit to remain manageable (ii) but forget about the sovereign bond – as the spreads are too wide now (iii) tax collection will have suffered, but no one knows how much yet (iv) new budget is needed for the country to factor in new spending for towns & businesses to be re-built, resettlement of people.
  • Interest rates: The government will have to control borrowing otherwise that will hit interest rates which is critical; if they go up significantly, that will put the brakes on economic growth – as they make everything more expensive and reduce purchasing ability for housing, credit cards, personal loans, etc.
  • Time: How much time do we have to sort out economic problems? more time than some pessimistic i-banks think, but less time than some government advisers think
  • Renaissance will focus on the wholesale end of (i) consumer spending areas – this will show growth (ii) real estate. They are big in Africa and the Nairobi office runs a region from S. Sudan to Angola.
  • Kenya is a buying opportunity, if you think long term i.e. 10 – 15 years. Kenyans firms understand they have to go regional – and they have a head start

Best case scenario: political solution found and hope & confidence can be restored among investors (including kiosk owners); Kenyans are successful business people as long as politics doesn’t interfere.

Worst case scenario: no political solution; and the economy goes into stagflation – nothing happened e.g. the NSE started 2007 at 5,000 and ended at 5,000. He said investment bankers can make money if the economy is going up, or going down, but not where it is stuck/going sideways

Related post: From January, some Renaissance earlier comments on the economy.

Bankers’ post-election assessments

Citigroup (CITI)

  • Limited impact on economy if the political crisis is resolved. It Matters little to the economy who won the election as private sector will continue to drive growth
  • Share sell off at NSE could be a good buying opportunity as economic fundamentals unchanged.
  • President will use police and military to clamp down on protests which themselves will not last more than a few weeks
  • Parliament loyalties will be split by president as MP’s vote with their stomach
  • There’s little the international community can do besides pushing for reforms.
  • Also in the pre-election period, the opposition may have been falsely buoyed by opinion polls which are not sound (& could the same thing have happened to Obama in New Hampshire ?)

Renaissance Capital (RENCAP)

  • Crime wave has emerged under the guise of political riots
  • Government may take all 12 nominated seats in parliament
  • Reemergence of the civil society and NGO’s as source of political pressure and search for solutions.
  • Main threat is if two parties don’t agree so may revise down the 6 – 7% GDP projections.
  • Also prices have not factored in the chaos, so investors should hold off on buying.

Thanks to Silaha for the 2 reports – and who has also blogged some post-election predictions for Kenya

Treasury Officals:– from Business Daily

  • Damage on the economy could cut the projected growth by as much as a half, if not worse as agricultural, financial services and tourism sectors are likely to under perform
  • Treasury could be forced to craft a stimulus economic package to help reconstruct the affected regions and
  • Lower the interest rates in the economy.

Central Bank Governorfrom Reuters

  • Kenya can still achieve 8% growth in 2008
  • Disruptions were temporary and will have a major impact on GDP growth
  • Shilling’s depreciation was due to holiday period
  • Safaricom IPO in the first quarter of 2008
  • Interest rates will not change

World Bank
(Hat tip Kumekucha) There’s a controversy brewing of the World Bank’s assessment of the election and resultant crisis


  • The considered view of the UN is that the ECK announcement of a Kibaki win is correct. More irregularities of consequence on the Odinga side than on the Kibaki side.
  • The process of arriving at the result created a crisis of confidence due to missteps by (a) the ECK chair (who joked about possible rigging during a news conference), (b) the vocal EU observer who was not thorough and precise in analyzing information provided to him (c) the lack of preparation by Kibaki’s party in dealing with a highly media-savvy opposition.
  • Moving forward. One option being explored is getting them to agree to a recount which, by law, has to be done through a petition to Kenya’s High Court. Eminent persons from abroad would monitor this recount. Meanwhile, Kibaki would proceed to form a Cabinet, possibly with some participation by Odinga supporters. It is unclear what would happen if the exercise arrived at a different result from the ECK decision. The gamble is that this would not happen and that even if it did, both sides would have a face-saving way to accept a change in course via-a-vis their supporters

This is not the first time the first time that the land-lord-tenancy arrangement between the President and the World Bank has been put to question – see here and here

Finally, not sure if she’s a banker, but Kenyanentreprenur argues that what Africa needs are development minded dictators since we are not ready for democracy – and I hope we won’t be having this debate in 2012!

My own take is that the people at the Coast, Nyanza, Rift Valley and Western provinces need to start rebuilding their lives and their industries – otherwise they will be left behind. Rioting in your own community is dumb as you destroy businesses that deliver services and create jobs within the community. So pass that message along with any peace & sympathy messages you convey. Also watch NTV’s great Voices of Reason program on Youtube that looks at pre- and post-election issues (more on that later).