Construction industry faltering under high interest rates

By: BRIAN NGUGI

The construction industry is set for further contraction over the next few months as high interest rates continue to bite.

Investors in the industry are calling on the regulator to check high interest rates, saying cheaper loans will offer a lifeline to the segment.

“The lending rates are ridiculous. Something needs to be done about them as they have driven the construction costs to the roof,” said Mr Joe Mungai, managing director, Tamarind Properties.

Athi River Mining Deputy Managing Director Surendra Bhatia added that high lending rates had stalled the industry’s performance as investors shy away from credit.

“The high interest rates and the depreciation of the shilling, whose ripple effect has been high capital costs, have seen developers hold back,” said Mr Bhatia.

“We also want the government to protect the local manufacturing sector by raising import tariff on cement and clinker,” said Mr Bhatia Thursday.

Ministry of Transport and Infrastructure Permanent Secretary John Mosonik refused to comment on the status of national infrastructure projects, even as analysts warned of further contraction.

“The construction sector is set to slow down further. It’s clear we have a massive overhang of supply and it is also clear the developer class is over-leveraged. I expect the sector to contract over the next 12 months,” said economic analyst Aly Khan Satchu.

A spot check by the Nation showed major national projects, including the 10,000 kilometre roads project, have stalled.

The Central Bank left its benchmark interest rate on hold at 11.5 per cent on September 22.

On Wednesday, data from the Kenya National Bureau of Statistics showed that the construction industry contracted 9.9 per cent during the second quarter this year, compared to a 16.6 per cent jump during the same period last year.

Loans extended to the sector, however, grew from Sh77.1 billion during the second quarter of last year to Sh87.5 billion during the second quarter of this year.