Home Financing Firm Seeks to Drive Affordable Housing Plan
MONDAY AUGUST 20 2018
Kenya Daily Nation
In Summary
It is estimated that, to address the biting housing shortage over the next five years, Kenya requires a staggering Sh2.3 trillion.
Mortgage penetration in Kenya remains low, currently standing at 4.3 per cent of gross domestic product compared to developed nations.
Developers are facing two key challenges of runaway land prices, especially in Nairobi and its environs, and strict access to financing.
By NJIRAINI MUCHIRA
Home financing could be the panacea to the perennial problem of affordable housing in the country.
And, going by the enthusiasm with which financial institutions have embraced a company established to spearhead home financing, there could be light at the end of the tunnel for many Kenyan families hoping to have a home of their own.
Banks, pension schemes, fund managers and other financial institutions have traditionally been cagey about doing business with the State, unless investing in government securities.
However, the zeal with which they are lining up to subscribe to shareholding in the newly-established Kenya Mortgage Refinancing Company (KMRC) has raised hopes that a solution to the country’s perennial housing problem could be in the offing.
FINANCIAL OBLIGATION
With housing being part of President Uhuru’s Big 4 Agenda, in which the government aims to provide at least 500,000 affordable new houses by 2022, the jigsaw puzzle of closing the financing gap for majority of Kenyans is falling in place.
It is estimated that, to address the biting housing shortage over the next five years, Kenya requires a staggering Sh2.3 trillion.
With the current budgetary allocation of Sh6 billion, it is obvious that delivering on the housing agenda would be impossible without exploring new strategies, something that has forced the government to bring other stakeholders on board through KMRC.
KMRC is not operational yet with the National Treasury in the process of hiring a consultant to advice on issues like raising initial capital, preparing an offering memorandum, securing shareholders’ contributions and preparing shareholders’ agreement.
SHAREHOLDERS
But with the Treasury allocating Sh1.5 billion seed money and an additional Sh16 billion from the World Bank, who have said interested institutions can invest a minimum of Sh10 million, a number of financial institutions have committed to be part of the new entity.
Co-operative Bank is among banks that plan to take up shareholding in KMRC, with the bank’s board approving an investment of Sh200 million in share capital.
“National Treasury has kicked-off the initiative of KMRC to source for long-term financing to fund the provision of affordable housing and Co-operative Bank expects to be a key partner,” Dr Gideon Muriuki, Co-operative Bank Managing Director, said.
Mortgage financier Housing Finance has also committed to take up shareholding in KMRC on the basis that the new company will be central in addressing the demand for affordable housing by providing financing.
“This is a good idea because it brings down mortgage rates down to the level of rent. This will make owning a home affordable,” Mr Frank Ireri, Housing Finance Group Managing Director, said.
MORTAGE LOANS
He added with KMRC, it will be possible for mortgage rates to reduce to about Sh25,000 per month down from an average of Sh100,000 currently, ultimately meaning that majority of Kenyans who are paying rent will afford to take up a mortgage or sign up to house financing schemes.
“Making it possible to offer mortgages at fixed interest rates of about nine per cent at longer tenures of up to 15 years opens up the market to majority of Kenyans,” he noted.
Mortgage penetration in Kenya remains low, currently standing at 4.3 per cent of gross domestic product compared to developed nations, which usually are above 50 per cent.
Currently, only about 25,000 Kenyans have signed up to mortgages and majority are in financial distress owing to interest rates oscillating between 13 per cent and 17 per cent, a scenario that has resulted in a significant surge in non-performing mortgages.
Central Bank of Kenya data show that non-performing mortgage loans have averaged 10 per cent over the past two years, which is above the industry average of bad loans to gross loans ratio of 7 per cent.
REPAYMENT PERIOD
The establishment of KMRC is thus seen as a critical step in addressing the bottlenecks in home market financing and driving growth of mortgage uptake.
This is because it will act as a financial intermediary between the capital markets and financial institutions, particularly commercial banks that offer mortgage loans by providing them with the much-needed liquidity.
KMRC will access the capital market by issuing long-term bonds and utilise the proceeds to provide liquidity to mortgage lending institutions by providing refinancing facilities.
Ultimately, it means that more financial institutions will feel inclined to enter the mortgage financing market segments with affordable products that offer home buyers opportunities of long-term repayment periods of up to 20 years compared to 10 years currently.
Currently, only 15 financial institutions, including commercial banks and micro-lenders, offer mortgage financing.
This is a situation that has forced Kenyans to depend on savings and credit co-operative organisation (saccos) and other ad hoc strategies like own construction that involves buying a piece of plot and building gradually with a dream of ultimately owing a home.
CHALLENGES
Though KMRC is expected to catapult demand by availing financing, the quest for affordable housing could be hampered by lack of supply.
For it to succeed, the country needs a supply of 200,000 affordable units every year considering that Kenya is facing a housing deficit of two million units annually.
The production of housing units is currently at less than 50,000 units annually.
However, developers are facing two key challenges of runaway land prices, especially in Nairobi and its environs, and strict access to financing.
A report by Hass Consult show that the price of land in 10 key counties increased by an average on 7.3 per cent last year, with the average price per acre in Nairobi going for Sh189 million, Sh48.9 million in Mombasa, Sh32.3 million in Kiambu and Sh13.3 million in Machakos.
Apart from land, credit squeeze brought about by interest rate capping has not made things any easier for developers, with credit to the private sector plunging to 2.1 per cent as at April this year compared to a five-year average of 14 per cent for the period 2013 to 2018.
MARKET DEMAND
The realisation that private developers might not be able to supply the required units at affordable prices has forced the government to develop a comprehensive housing development programme that will require the National Housing Corporation (NHC) to awaken from its deep slumber.
Despite being in existence for over six decades, NHC has only managed to put up about 60,000 units, representing an average of 1,000 units annually.
This has meant the corporation only controls 10 per cent of the housing market with private developers commanding 90 per cent, something that enables them to dictate prices.
The framework also requires county governments to allocate part of their resources to housing development and also set aside land for developers willing to invest in affordable houses.
Kenya Daily Nation
In Summary
It is estimated that, to address the biting housing shortage over the next five years, Kenya requires a staggering Sh2.3 trillion.
Mortgage penetration in Kenya remains low, currently standing at 4.3 per cent of gross domestic product compared to developed nations.
Developers are facing two key challenges of runaway land prices, especially in Nairobi and its environs, and strict access to financing.
By NJIRAINI MUCHIRA
Home financing could be the panacea to the perennial problem of affordable housing in the country.
And, going by the enthusiasm with which financial institutions have embraced a company established to spearhead home financing, there could be light at the end of the tunnel for many Kenyan families hoping to have a home of their own.
Banks, pension schemes, fund managers and other financial institutions have traditionally been cagey about doing business with the State, unless investing in government securities.
However, the zeal with which they are lining up to subscribe to shareholding in the newly-established Kenya Mortgage Refinancing Company (KMRC) has raised hopes that a solution to the country’s perennial housing problem could be in the offing.
FINANCIAL OBLIGATION
With housing being part of President Uhuru’s Big 4 Agenda, in which the government aims to provide at least 500,000 affordable new houses by 2022, the jigsaw puzzle of closing the financing gap for majority of Kenyans is falling in place.
It is estimated that, to address the biting housing shortage over the next five years, Kenya requires a staggering Sh2.3 trillion.
With the current budgetary allocation of Sh6 billion, it is obvious that delivering on the housing agenda would be impossible without exploring new strategies, something that has forced the government to bring other stakeholders on board through KMRC.
KMRC is not operational yet with the National Treasury in the process of hiring a consultant to advice on issues like raising initial capital, preparing an offering memorandum, securing shareholders’ contributions and preparing shareholders’ agreement.
SHAREHOLDERS
But with the Treasury allocating Sh1.5 billion seed money and an additional Sh16 billion from the World Bank, who have said interested institutions can invest a minimum of Sh10 million, a number of financial institutions have committed to be part of the new entity.
Co-operative Bank is among banks that plan to take up shareholding in KMRC, with the bank’s board approving an investment of Sh200 million in share capital.
“National Treasury has kicked-off the initiative of KMRC to source for long-term financing to fund the provision of affordable housing and Co-operative Bank expects to be a key partner,” Dr Gideon Muriuki, Co-operative Bank Managing Director, said.
Mortgage financier Housing Finance has also committed to take up shareholding in KMRC on the basis that the new company will be central in addressing the demand for affordable housing by providing financing.
“This is a good idea because it brings down mortgage rates down to the level of rent. This will make owning a home affordable,” Mr Frank Ireri, Housing Finance Group Managing Director, said.
MORTAGE LOANS
He added with KMRC, it will be possible for mortgage rates to reduce to about Sh25,000 per month down from an average of Sh100,000 currently, ultimately meaning that majority of Kenyans who are paying rent will afford to take up a mortgage or sign up to house financing schemes.
“Making it possible to offer mortgages at fixed interest rates of about nine per cent at longer tenures of up to 15 years opens up the market to majority of Kenyans,” he noted.
Mortgage penetration in Kenya remains low, currently standing at 4.3 per cent of gross domestic product compared to developed nations, which usually are above 50 per cent.
Currently, only about 25,000 Kenyans have signed up to mortgages and majority are in financial distress owing to interest rates oscillating between 13 per cent and 17 per cent, a scenario that has resulted in a significant surge in non-performing mortgages.
Central Bank of Kenya data show that non-performing mortgage loans have averaged 10 per cent over the past two years, which is above the industry average of bad loans to gross loans ratio of 7 per cent.
REPAYMENT PERIOD
The establishment of KMRC is thus seen as a critical step in addressing the bottlenecks in home market financing and driving growth of mortgage uptake.
This is because it will act as a financial intermediary between the capital markets and financial institutions, particularly commercial banks that offer mortgage loans by providing them with the much-needed liquidity.
KMRC will access the capital market by issuing long-term bonds and utilise the proceeds to provide liquidity to mortgage lending institutions by providing refinancing facilities.
Ultimately, it means that more financial institutions will feel inclined to enter the mortgage financing market segments with affordable products that offer home buyers opportunities of long-term repayment periods of up to 20 years compared to 10 years currently.
Currently, only 15 financial institutions, including commercial banks and micro-lenders, offer mortgage financing.
This is a situation that has forced Kenyans to depend on savings and credit co-operative organisation (saccos) and other ad hoc strategies like own construction that involves buying a piece of plot and building gradually with a dream of ultimately owing a home.
CHALLENGES
Though KMRC is expected to catapult demand by availing financing, the quest for affordable housing could be hampered by lack of supply.
For it to succeed, the country needs a supply of 200,000 affordable units every year considering that Kenya is facing a housing deficit of two million units annually.
The production of housing units is currently at less than 50,000 units annually.
However, developers are facing two key challenges of runaway land prices, especially in Nairobi and its environs, and strict access to financing.
A report by Hass Consult show that the price of land in 10 key counties increased by an average on 7.3 per cent last year, with the average price per acre in Nairobi going for Sh189 million, Sh48.9 million in Mombasa, Sh32.3 million in Kiambu and Sh13.3 million in Machakos.
Apart from land, credit squeeze brought about by interest rate capping has not made things any easier for developers, with credit to the private sector plunging to 2.1 per cent as at April this year compared to a five-year average of 14 per cent for the period 2013 to 2018.
MARKET DEMAND
The realisation that private developers might not be able to supply the required units at affordable prices has forced the government to develop a comprehensive housing development programme that will require the National Housing Corporation (NHC) to awaken from its deep slumber.
Despite being in existence for over six decades, NHC has only managed to put up about 60,000 units, representing an average of 1,000 units annually.
This has meant the corporation only controls 10 per cent of the housing market with private developers commanding 90 per cent, something that enables them to dictate prices.
The framework also requires county governments to allocate part of their resources to housing development and also set aside land for developers willing to invest in affordable houses.
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