Expensive imported construction materials saw property developers go back to the banks for Sh45.3 billion top-ups last year, pushing the growth in loans advanced to the sector to a five-year high.
The latest economic survey shows that loans disbursed to the building and real estate sector grew 7.2 percent last year to Sh607.2 billion from Sh561.9 billion, signalling continued appetite towards the market.
Official data shows the sector has continued to recover with the loans surpassing those disbursed before the Covid-19 pandemic.
In 2019, the sector received loans totalling Sh493.16 billion followed by Sh534.7 billion, Sh539.2 billion, and Sh561.9 billion in 2020,2021 and 2022, respectively.
"Loans and advances from commercial banks to the construction sector increased by 7.2 percent to Sh602.7 billion in 2023," read the Economic Survey.
Though the sector witnessed an ease in inflation, the weak shilling over 2023 resulted in expensive and lower construction inputs.
The year-on-year inflation for the construction sector was 4.16 percent last year compared to 7.1 percent in the previous year.
"The quantity of iron and steel, cement clinkers and non-ferrous metals imported declined by 14.2, 77.5 and 0.2 percent, respectively, compared to 2022," read the Economic Survey.
Imported cement clinker, used majorly in the construction sector reported a 77.9 percent decline exacerbated by the increased prices of crude oil internationally.
"The volume of imported cement clinkers declined from 656.5 thousand metric tonnes in 2022 to 148 thousand metric tonnes in 2023 while iron and steel declined from 1,406.6 thousand metric tonnes to 1,208.1 thousand metric tonnes in the same review period," the report added.
The sector registered an overall decline in growth of three percent in 2023 compared to 4.1 percent in 2022.
"Last year, the construction and manufacturing sector complained about the inflation and tax burden, and these are some of the factors that attributed to the need to boost capital," said Ms Stella Swakei, senior research associate at the Standard Investment Bank (SIB).
Ms Swakei reckoned that with new proposed taxes in the Finance Bill 2024, loan uptake by players in the sector is likely to increase.
"The import declaration levy (IDL) was reduced from 3.5 percent to 2.5 percent in the Finance Bill 2023 and a new proposal to increase it to 3 percent, will weigh down the other proposals to lower the cost of cement production," she added.
“Contractors represent the largest percentage of pending bills from the national government, amounting to Sh241.7 billion implying that a significant amount of capital is held up by the government, forcing then to seek alternative means of raising capital.”
