Unprecedented Disruptions
Almost all sectors of the economy, if not all, have been ravaged by the negative effects of Covid -19. Ultimately, the President and Ministry of Health imposed a raft of ideas that hampered various economic sectors, some to the point of collapse. The housing sector was not left out. Before the pandemic, the housing sector was meant to grow in 2020, showing signs of early recovery in 2019 (5.3%), from a sluggish growth experienced in 2018 (4.3%) and 2017, according to KNBS (Kenya National Bureau of Statistics). This paper looks at the local and international effects of Covid-19 on the housing sector.
Unprecedented Disruptions
Since the lockdown measures were imposed, the real estate sector experienced shocks with some of the effects being the disruption of its supply chain by reducing the labor force. As a result, project delays were experienced. According to cash & Patel, further delays in building approvals from public offices such as City Hall compounded this problem since they remained closed (2020).
Furthermore, the frequency with which banks and other financial institutions offered loans and mortgage facilities greatly reduced, leading to reduced cash flow (Cash & Patel, 2020). Such institutions further tightened their lending conditions, making it hard for investors to access the much-needed operational cash.
Most landlords have been lenient on the rental front, offering incentives such as lowering their tenant’s monthly rent or forced to re-negotiate their repayment terms on their loan facilities to financial institutions. This was brought about by most employees, either receiving half-pay, unpaid leave, or complete termination of their employment contract (Cash & Patel, 2020). Besides, some tenants have moved in with friends and family members, leading to an increase in vacant houses. 75% of office spaces are also vacant due to the Government’s work at home directive.
Confusion and Uncertainty
The effects of the pandemic also have a global reach. Globally, the construction industry is worth $11 trillion, of which the residential sector takes a huge share. For instance, the residential segment performed well in the first quarter of 2020, witnessing a surge of activities. Due to the rising cases of infection, many ongoing construction projects considered essential were not shut down. However, Fairlie indicates that new residential permits were suspended (2020). Currently, contractors and builders struggle to get their in-process and new construction permits approved due to the raft of government guidelines and regulations. Such regulations have created uncertainty among labourers and contractors.
Contractual Implications
Commercial relationships between contractors and clients have been affected after the onset of Covid-19 due to suspensions and delays (Salisu & Akanni, 2020). As the delays are usually defined in the negotiated project contract, the following outcomes are possible;
Termination- Delays may lead to the contract’s termination, as specified in some contracts (Gereffi, 2020). Such contracts state that if the delays are extended for a particular period, either party can exit the contract.
Contractor” s recovery of additional cost- The contractor may seek to recover overheads due to delays. Such a risk comes into play if the client directs the contractor to stop the works or change their mode of working.
Extension of time- A lot of contractors have cited extension of time in a lot of projects based on
Covid-19 due to “force majeure”. However, it should not be assumed since it would be hard for contractors to cite force majeure in awareness of Covid-19 when signing the contract.
Conclusion
Many contractors seek contractual benefits such as the extension of time or additional costs as Covid-19 effects continue developing. Such effects are increasingly getting unknown, and we anticipate that the construction industry will continue being hit hard. In the meantime, all that contractors can do is to apply for relief to cushion their businesses.