Low cost houses still out of reach as developers cite high costs of inputs

 

One of the Kenya National Housing Corporation projects in Ngara, Nairobi. PHOTO | SALATON NJAU 

By ISAAC KHISA The EastAfrican

In Summary

• Decent housing is priced out of the reach of low to middle income earners in East Africa whose gross pay ranges between $200 and $2,000.

Prospective homeowners in East Africa are unlikely to acquire low-cost houses any time soon, with developers citing high costs of land, building materials and financing mortgages as factors that have made investing in the sector less attractive.

 

Uganda’s National Housing and Construction Company (NHCC) has taken out a $9 million loan from pan-African urban housing financier Shelter Afrique for a low-cost housing project, but it has turned out that the developer will use the money to put up 162 housing units in Namungoona, a Kampala suburb.

When complete, the houses will sell at between Ush200 million ($74,956) and Ush250 million ($93,695) — the highest price in the region as developers in Rwanda quote prices for low cost houses at an average of Rwf40 million ($57,882), while in Tanzania, the prices range between Tsh45.75 million ($26,913) and Tsh128.9 million ($75,827).

Developers in Kenya, on the other hand, quote their low cost housing units at Ksh2 million ($22,385).

READ: Kenya's NHC pushes for prefabs to boost home ownership

This means decent housing is priced out of the reach of low to middle income earners in East Africa whose gross pay ranges between $200 and $2,000.

READ: Challenge of providing low cost housing for buyers

Betty Bennadine Amony, information management officer at the NHCC, told The EastAfrican that the price for the housing units in Uganda reflects the costs of setting up the facilities.

“Developers look at several factors such as quality, construction costs and availability of financiers for buyers in terms of mortgages. However, NHCC is studying various options and creating partnerships to make housing a lot more affordable for low-income earners and all Ugandans,” Ms Amony said.

Anatoli Kamugisha, the managing director of real estate firm Akright Projects, said low cost housing in Uganda is still a myth due to high construction costs that include land whose prices now range between Ush100 million ($37,478) and Ush300 million ($112,435) per acre in Kampala Metropolitan Area, which covers the city, the districts of Mpigi, Mukono, Wakiso and Entebbe town.

Mr Kamugisha argues that low-cost housing is only possible if developers build many semi-detached units, with the government offering incentives towards setting up other infrastructure — roads, water and electricity — in the estates.

“We also borrow at the same rate as any other individual borrowing from the banking to finance the construction, and so we need to sell those houses at a profit,” Mr Kamugisha said.

Data from the Bank of Uganda shows that land prices in Kampala increased by 25.4 per cent over the 12-month period to June 2013, driven by increased demand after the reopening of the Land Registry.

The real estate indices, which were introduced in 2011, also show a 4.2 per cent increase in the cost of residential property between June 2012 and June 2013 and a 22.1 per cent decrease in the cost of commercial rental space between September last year and June 2013.

“The rise in the land price index of 25.4 per cent in the year to June 2013, combined with a greater willingness on the part of banks to lend for mortgages and land purchase relative to the same period in 2012, suggests that many new borrowers will be acquiring homes and land at higher costs,” said BoU in its latest financial stability report for the period ended June 2013.

Similarly, the cost of construction rose by 1.9 per cent in the 12 months ended September, according to Uganda Bureau of Statistics, due to a 1.3 per cent increase in price of inputs for residential buildings, a 1.4 per cent increase in the price of inputs for non-residential buildings and a 4 per cent increase in the price of inputs of civil works.

Uganda’s housing deficit currently stands at 1.2 million units, according to NHCC, with Kampala alone estimated at 750,000, while Kenya’s housing demand stands at 150,000 units per year, whereas only 35,000 units are supplied.

Among these units, only 20 per cent are constructed specifically for the low-income groups, while 80 per cent target the middle and high-income ends of the market.

Low-cost housing

In May this year, Kenya’s National Housing Corporation announced it would build 7,000 low-cost houses on Thika Superhighway and Mombasa Road in a bid to reduce the housing deficit in the country.

Managing director Wachira Njuguna said the houses will be one-bedroom apartments, sold for Ksh2 million (22,385.8) — the cheapest “low cost” unit in the region.

“Our target market are people in the lower and middle market segments who want to access decent housing at affordable prices,” Mr Njuguna said.

READ: In Kenya, owning a house remains a fantasy for most

Last year, the Tanzania National Housing Corporation sold over 182 low-cost houses and plans to sell another 214 units in Kigamboni, a suburb of Dar es Salaam.

In its five-year strategic plan, Tanzania’s NHC plans to develop 15,000 housing units by the end of 2015, 5,000 of which are to be allocated to low-income earners and the rest, for the middle and high-income groups.

Tanzania’s housing deficit, however, stands at three million units.

Meanwhile, Rwanda Social Security Board (RSSB) in October last year suspended its plan to construct 1,000 low cost houses in Kigali, saying the cost of land was not affordable. Rwanda’s countrywide housing deficit currently stands at 25,000 every year.

READ: Rwandan poor to wait longer for affordable homes

“We are still looking for land to invest in low cost housing. We need support from government to get affordable land,” Dr. Daniel Ufitekirezi, the then head of investments at RSSB, told Rwanda Today.