Incentives that will bring down the cost of housing

Housing unit models on display during this year’s Homes Expo at the KICC. FILE 

By EVELYN SITUMA
 

 

Serviced plots and government incentives like tax rebates are what will bring down the cost of housing fro Kenyans hoping to own their homes, says Daniel Ojijo, founder and organiser of the Kenya Homes Expo.

Speaking during the just-concluded Homes exhibition in Nairobi last week, Ojijo explained that if the government could provide a favourable environment for investors then more people would invest in the housing sector and offer Kenyans a chance to realise the elusive dream of owning a home.

Currently, thousands of Kenyans find it difficult to secure homes given the high cost of buying or building a house. The price of houses in urban centres has skyrocketed in the past 10 years, casting doubt on whether it is indeed possible for millions of Kenyans to live in a decent home which they own.

HassConsult’s property index indicates that an average house in Nairobi’s Eastlands goes for Sh4.1 million. The same house in Ongata Rongai is priced at Sh6.4 million. The price difference compared to a year ago is over Sh1 million.

But as look at the possibilities of providing affordable housing, let’s not think that the problem only affects low income earners. Middle class individuals with stable jobs are also affected. Formal employment has also done little to encourage those who are working to take up home loans which today stands at a paltry 19,000 according to data from Central Bank.

Commercial banks had Sh122 billion home loans by December 2012, which translates to an average of Sh6.4 million each. This means anyone who borrows to buy such a home has to cough up in excess of Sh98,000 every month to offset the Sh6.4 million mortgage at 18 per cent interest rate for 20 years. This, definitely is beyond the reach of most employed Kenyans.

According to Central Bank, digitalising records at the Lands Ministry will reduce the time taken to process property transfers as well as provide a reference point on property pricing. The bank has also suggested reduction of stamp duty as an incentive for first time buyers.

But even as realtors consider satellite towns where property prices are not as expensive and innovative construction materials as a strategy to realising the dream of affordable housing for Kenyans, those who continue to buy land for speculation purposes and its scarcity in prime locations cannot be overlooked. Many people blame speculation on land for the high price they have to pay for properties around major towns.

However, whereas the cost of land and the effect of speculation may bear some blame, realtors are pointing their fingers at infrastructure as bearing the most blame. According to them, huge capital investment incurred due to infrastructure is what is raising the cost of housing. 

According to developers, infrastructure takes 30 per cent of any development cost.  Realtors list roads, sewerage systems, power lines and supply of water as factors that are sending their building budgets way over board. 

But can incentives from the government and bringing down the cost of servicing plots really bring down the cost of housing for Kenyans? According to Ojijo, the two factors can bridge the deficit in housing which currently stands at 120,000 houses annually and also push up the number of Kenyans taking up mortgages.

“100 per cent rebates will actualise the promises made in the Jubilee manifesto with regard to providing decent and affordable housing,” said Ojijo.

The government introduced a 25 per cent tax rebate for developers setting up infrastructure in their developments through the Finance Act 2012.  Although it’s lauded, realtors like Ojijo feel that the reward is minimal and are instead asking for 100 per cent refunds on corporate tax.

“These refunds will help open up other areas of revenue like mortgage uptake as houses become more affordable to people with lower incomes,” he said. The outlines a situation where a person incurs capital expenditure on the construction of a commercial building to be used in a business on or after 1st January 2013, and a person who has provided roads, power, water, sewers and other social infrastructure. But even with that, Carol Kariuki, chief executive officer the Mortgage Company feels there is still need for easy access to funds

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“Urgent interventions are necessary in creating low-cost finance for home buyers,” she says. According to her, infrastructure bonds for developers and legislation are necessary in bringing down the cost of homes. Realtors are convinced that low-cost infrastructure bonds will help shoulder the burden they incur on providing infrastructure for their developments.

 

Another approach would be for pension funds to play an active role in the mortgage market. Since the law allows up to 30 per cent of investment from such funds to be channelled to such causes, pension funds’ investment in low infrastructure bond would enable developers to access the funds directly through capital markets, thus easing the cost of investment. The realtors hope the government will use the gains from such bonds to fund construction infrastructure