Kenya sets stage for cheaper mortgages

A housing estate in Thika, central Kenya. The government hopes to provide 500,000 affordable homes to Kenyans by 2022. FILE PHOTO | NMG 

In Summary

• The government hopes to provide 500,000 affordable homes to Kenyans by 2022.

By NJIRAINI MUCHIRA
More by this Author

Kenya is targeting to increase the uptake of mortgages with the formation of a refinancing company that will help increase liquidity in the market.

The Kenya Homes Refinance Company (KHRC) is expected to issue bonds in the local capital markets, and with the proceeds extend long-term loans to financial institutions secured against mortgage by providing refinancing facilities.

The government hopes to provide 500,000 affordable homes to Kenyans by 2022.

“KHRC is expected to operate as a private sector-driven company with a public purpose of developing the primary and secondary mortgage markets by raising long term funds from capital markets,” said Treasury Cabinet Secretary Henry Rotich.

The mortgage market in Kenya has contracted in volumes to 24,085 in 2016 from 24,458 in 2015 according to the Central Bank. Less than 10 per cent of all housing credit comes in the form of mortgages from the banking sector, with the bulk coming from savings and credit societies and housing co-operatives.

The formation of the company is seen as a major step in driving growth of mortgage uptake.

However Cytonn Investments managing director Edwin Dande said project execution is key.

“The idea of a refinancing company to push the growth of the mortgage market is good but its success will depend on execution,” he said.

In East Africa, only Tanzania has a mortgage refinancing company, established in 2010. By the end of 2016, Tanzania Mortgage Refinance Company’s mortgage refinancing and prefinancing to banks stood at $26.4 million up from $19.4 million in 2015. In Africa, Nigeria and Morocco are among countries that have adopted the refinancing model to drive growth of the mortgage market.

According to the World Bank, Kenya is significantly going to accrue the benefits of a mortgage refinancing company in the quest to provide affordable and decent housing taking into account that 61 per cent of urban households live in slums.

“A key advantage of a mortgage refinancing company is that medium or smaller-sized financial institutions are able to access funds on the same terms as larger ones, something that enables them offer mortgage financing,” states the bank in a reported dubbed Kenya Economic Update: Housing—Unavailable and Unaffordable.

It adds that unlocking the residential housing market through the development of the housing finance market can provide a wide range of income opportunities through the construction sector and related industries.