How Lower Financing Costs are Set to Benefit Construction Companies

The Kenyan construction sector is on the verge of its biggest financing relief in a decade. This shift could reshape everything from skyscrapers in Nairobi to affordable housing estates across the country. The sustained fall in borrowing costs is excellent news for an industry that relies heavily on debt to fund its ambitious projects.

With Treasury bill yields dropping to 7.94 - 9.53% from 15.8 - 16.9% a year ago, and a new lending framework taking hold, construction companies now face a far more favorable financial landscape. The decline in interest rates, alongside a fundamental change in how banks price loans, is directly transforming the bottom line for builders and developers.

For years, lending rates were loosely tied to the Central Bank of Kenya (CBK) base rate. Now, under the Risk-Based Credit Pricing Model (RBCPM), the Kenya Shilling Overnight Interbank Average (KESONIA) is the key benchmark for variable-rate loans. This matters greatly for construction firms. Instead of a flat rate, loans are priced as KESONIA plus a risk-based premium and fees. With Treasury yields and KESONIA trending down, the fundamental cost of borrowing is now much lower.

The most immediate benefit is a reduction in the total cost of loans for new construction projects. Developers can unlock better profit margins while making a wider range of projects, from residential housing estates to large commercial complexes, financially viable. For instance, Kings Developers, which has been active in Nairobi’s real estate market, can now roll out high-rise housing projects with more confidence. Similarly, contractors such as Epco Builders can bid more competitively on infrastructure and government-backed affordable housing projects.

Lower borrowing costs also mean companies can accelerate growth by purchasing modern equipment, hiring more skilled workers, and securing land for future developments. This encourages long-term investment, which is essential for sustainable expansion in the construction industry. Importantly, firms with existing variable-rate loans are seeing their repayment obligations shrink, freeing up cash for operations or reinvestment. The relief is especially valuable for companies that borrowed heavily during the previous high-interest-rate environment.

The financing advantage is not limited to shilling loans. Many Kenyan firms hold dollar-denominated debt, especially for importing materials and machinery. As the US Federal Reserve cuts its policy rate, companies stand to benefit from reduced costs on these loans as well. This double relief from lower local and international financing costs creates a powerful incentive for new investment across the sector.

The ripple effects extend beyond construction firms. Major corporates like East African Breweries Limited (EABL) and Centum, both with significant real estate exposure, will also benefit from reduced financing costs. For homebuyers, cheaper credit could mean more affordable mortgages, which in turn stimulates demand for new housing. This creates a virtuous cycle where developers, contractors, financiers, and the public all gain from a single macroeconomic shift.

For the government, this environment comes at the right time. With the affordable housing program and large-scale infrastructure development driving national priorities, lower credit costs make it easier for private developers and contractors to align with these projects. By tapping into more affordable capital, Kenya can accelerate job creation, expand housing supply, and enhance infrastructure delivery.

This golden window of lower financing costs, anchored by a transparent new lending model, has the potential to transform the Kenyan construction industry. If firms like Kings Developers and Epco Builders leverage this opportunity, the sector could enter a sustained period of growth that not only strengthens balance sheets but also reshapes Kenya’s urban and economic landscape for years to come.