Interest rates lock out buyers

 

By ALLAN OLINGO

In Summary

• Among the alternative financing routes has been mortgages denominated in dollars, euros, or pound sterling. In this market, Bank of Africa and Chase Bank lead the field with the cheapest offerings in the first quarter at a rate of nine per cent.

Only 20 per cent of residents in Nairobi own a house while the rest live in rentals.

This is a small percentage as attributed to the highlights of the quarterly housing report conducted by Hass Consult for quarter one of 2013.

The report indicates that the high interest rates being offered by banks are to blame for the low uptake of mortgages.

According to Ms Sakina Hassanali, the head of research and marketing at Hass Consult, the push is coming as expensive mortgages tie potential buyers to renting amid some tightening of rental supplies and with landlords seeking better returns after almost two years of relative losses.

“The rental market is yet set to see further price rises despite limited disposable income among consumers, who currently pay a far higher proportion of their incomes in rent than is the norm globally,” said Ms Hassanali while releasing the Hass Consult property index.

Ms Carol Kariuki of The Mortgage Company says the rates are running at a far higher level than is the norm.

“With the Central Bank rate stabilising at 9.5 per cent, we would normally expect a 4 per cent spread, meaning rates of 13 to 14 per cent, yet the average is still next to 18 per cent,” she explains.

This has rendered houses bought with mortgages a loss-making asset, which is a grave situation and has to call into question the purpose of the banks holding on to such high returns.

Says Ms Kariuki: “Unless the banks now return to more normal returns, the consequences for the mainstream mortgage industry will be extremely serious as buyers seek alternative financing routes, and the mortgage industry renders itself stillborn.”

Among the alternative financing routes has been mortgages denominated in dollars, euros, or pound sterling. In this market, Bank of Africa and Chase Bank lead the field with the cheapest offerings in the first quarter at a rate of nine per cent.

“However, mortgage takers should exercise great caution in committing to foreign currency repayments unless the country enjoys the kind of improvement in its balance of payments that will stop the shilling from deteriorating. The outlook for exchange rates carries its own additional costs,” said Ms Kariuki.

The reality is that a combination of monetary policy, political uncertainty, and economic imbalance in the first quarter depressed the outlook for the country’s mortgage market.

“We expect the new administration under President Uhuru Kenyatta to work with the real estate and financial sectors to ensure that we address the issues hindering mortgage penetration in Kenya. We are confident that with policy interventions and the promising economic environment, the growing housing shortage can be significantly reduced,” she said.

From the report, it is interesting to note that those who buy-to-let are losing money. And while all these owners will eventually make gains as the exacerbated shortages push house prices up further, the entry point will continue to move further out of reach for the vast majority of Kenyan families and wage earners.

In December a report by Johannesburg-based Centre for Affordable Housing Finance in Africa (CAHF) noted that almost 90 per cent of Kenyans do not earn enough to support a mortgage. In its Africa Housing Finance Yearbook 2012, CAHF noted that the prices of houses in Kenya were way above the reach of individuals who would ordinarily afford them.

“Only about 11 per cent of Kenyans earn enough to support a mortgage. This means that most middle-income earners cannot afford a mortgage facility to buy an entry-level house,” said the report.

According to the Kenya National Bureau of Statistics, middle-income earners are those earning between Sh23,672 and Sh119,999 per month while the upper income earners make over Sh120,000 a month, with the lower-income earners make less than 23,671 a month.

The CAHF report noted that even though one could find a decent minimum entry level house for at least Sh1 million and Sh2 million, most Kenyans cannot afford a mortgage.