To qualify for the housing loan, Kenyans must be earning less than Sh150,000 a month. FILE PHOTO | NMG
There are two essential
parts to achieving affordable housing in Kenya: building decent,
low-cost homes, and developing a housing finance market that enables
low-income earners to buy those
homes. For, without finance, almost no home price is low enough to be affordable on an average salary.
homes. For, without finance, almost no home price is low enough to be affordable on an average salary.
For
this reason, Kenya’s mortgage market has been growing. Housing loans
have risen more than ten-fold since 2006, from 1,278 loans valued at
Sh19 million 12 years ago to 24,458 loans valued at Sh203.3bn by 2015,
according to the Central Bank of Kenya (CBK).
But the
market still remains tiny when compared with other nations. In Kenya,
the mortgage loan value was equivalent to 3.15 percent of GDP by 2015.
However,
our own mortgage market is held back by multiple constraints, including
bureaucracy. Normally, the purchase of a property takes around three
months to complete. But mortgage finance in Kenya typically takes six
months to arrange, mired in nine separate, manual, administrative
processes.
These span land rent and rates clearance
certificates, transfer filing and consent, the search, the valuation and
its endorsement, and the stamp duty and lodging of documents. This
process, which the government is now working to simplify, adds
cumbersome work, as well as risk, thus increasing the cost of mortgages.
Most primary mortgage lenders thus set higher mortgage rates and focus
on high net worth individuals and high earners who can afford higher
rates. They also run shorter repayment periods, ranging from as low as
three years to an average of eight years. But repaying at such high
rates, so rapidly, puts borrowers under considerable pressure and leads
to defaults, which today stand at some 12 percent of Kenyan mortgages.
It is additionally a model that offers very few opportunities for low
and middle-income Kenyans to own homes. We, thus, need a radical
overhaul of mortgage financing if we are to achieve widespread home
ownership, which is where mortgage refinancing comes in.
Providing
a source of secure, long-term funding for mortgages has a direct impact
on the affordability of home loans for home buyers and is a vital
pillar to achieving a developed mortgage system.
Such funding was critical, for instance, in Malaysia and Singapore, where about 80 percent of houses are now mortgage-owned.
For
this reason, the National Treasury is contributing to the Affordable
Housing Pillar of the BIG 4 Agenda by supporting the creation of a
lending facility (the Kenya Mortgage Refinance Company) to provide
longer-term funds for banks and Saccos for residential mortgages in
Kenya. The Kenya Mortgage Refinance Company (KMRC) will provide secure
funding to mortgage lenders so that they can offer more mortgages at
lower prices.
With such long-term funding, primary
mortgage lenders will also be able to lengthen repayment periods to 15
to 25 years, and offer a fixed interest rate, making mortgages both safe
and affordable for low income earners. The new financing will mainly be
available for lower cost housing, valued at less than Sh4m in Nairobi
metropolitan area (Nairobi, Machakos, Kiambu and Kajiado) and Sh3m
elsewhere. Likewise, to qualify for the housing loan, Kenyans must be
earning less than Sh150,000 a month.
The writer is interim CEO, Kenya Mortgage Refinance Company.
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