Challenge of providing low cost housing for buyers

A view of the shopping centre of the newly constructed civil servants’ houses at Ngara. FILE 

By EVELYN SITUMA

Posted  Thursday, April 11  2013 at  15:39

In Summary

• The immense activity in the sector in the recent past has only met a quarter of the market demand.

The real estate market in the country has in the recent past managed to surpass the expectation of many, and as a result placed Kenya on the map as a formidable force in real estate development.

However, with the glory came failures and the ever glaring reality that the boom experienced in the property market has done little to ensure the poor are properly housed. Far from expectation, the rapid growth of the sector has created disparity among social classes, leaving the poor homeless.

Low income earners are today faced with the harsh reality that they are unable to compete in the real estate market, relegating them to be spectators in the lucrative market scene.

Low spending power

The growing urban population and low spending power are among factors blamed for their predicament. With the urban population in cities across the world including Kenya predicted to rise at an unprecedented rate, the government and stakeholders have been forced to review the issue and look at hurdles that have stood in the way.

According to Hass Consult 2011 property index, the immense activity in real estate has only met a quarter of the market demand. This is 35,000 of the 120,000 new housing units required in a year. The real estate consultant links the shortfall to ever escalating property prices.

“As a result of this mismatched supply and demand, housing prices have increased 100 per cent in recent years,” says the report.

What then are the government and developers doing to help the situation? The government, through its housing arm - National Housing Corporation (NHC) has been at the forefront launching a number of projects for low income earners.

The state corporation has sought to bridge the gap in the sector by focusing on low-income housing across the country. So far, among its recent plans, NHC is set to put up 10,000 low-cost houses countrywide. The corporation will achieve this by using low-cost building materials produced at a factory in Athi River.

Affordable building materials have emerged to be another important aspect in housing low income earners. This means developers investing in low-cost housing have to be more creative and come up with cost-effective technologies that will ensure the houses remain affordable. 

Mabati Rolling Mills (MRM) already came up with plans for ready-made houses costing as low of Sh80, 000 for this market for interested buyers. But more still needs to be done.

Overpriced land

Location is another factor to consider. Developers dealing in this market have had to secure land in the outskirts of Nairobi due to affordability and the fact that the houses have to cost as little as possible. Low cost houses are those that cost between Sh1million to Sh2million.

Many developers complain that land in Nairobi, is overpriced and scarce leaving the options of setting up such houses in other counties. Currently, neighbouring Kajiado County is the preferred option because of its proximity to the capital and the availability of land that is affordable.

NHC has priced the planned developments at Sh2 million. The houses will be completed next year. Urbanis Africa and Suraya are also among private developers who have shown interest in low cost housing ventures. The two realtors have separately rolled out investment opportunities for low-income earners in Kajiado County.

Urbanis launched the much publicised Kisaju Plains project, a multibillion real estate investment last year. The developer seeks to develop 800 homes on 115 acres of land in Kajiado. The developer is taking up the project in partnership with a land owner. They are offering investors an eighth of a plot at Sh450,000.

Urbanis invested Sh500 million in the project which is valued at Sh5.6 billion. They are also working on another project but this time for middle class earners - Kisaju View Park, which will have 2,000 residential houses.

Apart from building materials and developers’ willingness to invest in low cost housing, end user financing is another vital pillar in the government efforts. Buyers in this sector have found it hard to secure funds to purchase their dream homes.

Perhaps the biggest challenge financiers grapple with is the clients ability to pay. Most low income earners have no pay slip to show in order to guarantee borrowing thus complicating things.

Financial institutions

However, financial institutions and non-profit organisations are doing their best to offer low income earners the needed support. Among the institutions concerned are Jamii Bora, Acumen Fund and Makao Mashinani - an end user financer. Makao Mashinani gets its financial backing from Shelter Afrique, K-Rep bank, Jitegemee Trust among other institutions.

But despite the financial support from financiers, many Kenyans are still unable to service mortgages with only a little fraction of the population taking it up.

It is estimated that there are only 22,000 active mortgages in the country. However, the number is set to rise if the forecasted economic growth creates more employment opportunities for people and brings down the interest rate.