Depressed valuation of publicly listed real estate company, Home Afrika’s land and housing assets has contributed some Ksh391 million to Home Afrika’s loss of Ksh887 million for the period ending 31st December.
The loss comes despite the company reporting a 233 percent growth in gross revenue, adjusted for percentage of completion, growing from Ksh109 million in 2018 to Ksh363 million in 2019.
According the Central bank of Kenya quarterly economic review, the real estate sector has registered the highest increase in NPLs by Ksh6.1 billion representing 15.8 percent of NLPs, due to slow uptake of housing units.
In the recent past there has been significant depression of valuations of the real estate asset class in Kenya with some companies even recording more than Ksh3 billion loss owing to impairment in their property investment portfolio.
“In our case, the depressed valuation contributed up to KSh.391 million of our loss for the year,” said Dan Awendo, Home Afrika Managing Director.
Housing Price Index, a survey conducted quarterly by Kenya Bankers Association (KBA) shows that house prices remained depressed in the three months ending December 2019.
According to the report, the trend in changes in house prices is in line with the softening of the economy and is a manifestation of the interplay between weak demand driven by the tepid disposable income growth and supply-side conditions.
Home Afrika’s actual sales, not adjusted for percentage of completion, grew from KSh582 million in 2018 to KSh645 million in 2019.
This means that the group sold more property in 2019 than they did in 2018 even in the wake of a depressed economic environment.
“Unfortunately, International Financial Reporting Standards (IFRS) only allows us to recognize deposits from sales as revenue once a plot owner has completed payment, title has been processed and the project is complete. This means the billions we have sold year on year and sales deposits collected are still reflected as deferred income liabilities in our books thus presenting a negative outlook on our balance sheet position,” said Mr Awendo.
Migaa Golf Estate, one of Home Afrika’s long-term projects, is expected to realise its profitability towards the end of the project in about four years.
In line with IFRS, sales proceeds of the project are carried in the balance sheet as current liabilities both as deferred income and as deposits from sales of plots totals of which is now lingering at KSh3 billion as at 31st December 2019, compared with KSh2.6 billion for the same period in 2018.
This amount will convert to gross revenues in our statement of profit or loss as the percentage of completion of the project improves from the current 48 percent towards completion over the next couple of years.
The book value of the group’s sellable land and other inventory stood at KSh3.5 billion in 2019.
“We continue to invest in the infrastructure of the various projects which will help improve the market value of the land bank as the land becomes more desirable,” said Mr Awendo.
Mr. Awendo said the company had embarked on cost reduction measures including reducing of salaries and operating costs.
“The board is considering outsourcing options for other functions as well as disposing some non-core assets to raise cash flow.”