According to the Kenyan Vision 2030, access to decent and affordable housing has been identified as one of the social pillars of economic growth. Within the Vision 2030 housing pillar, the mortgage finance initiative seeks to establish a secondary mortgage finance corporation as well as a national housing fund, which will also introduce housing and infrastructure bonds to help develop affordable housing.
Kenya, a middle-income country, with a rebased per capita income of USD 1,160.0 has seen an expanding middle class, which has led to an increasing demand for housing. The ownership of houses in Kenya varies from cash purchases, own construction, or mortgage purchase options. Mortgage penetration in the Kenyan market remains low, currently standing at 4.3% of the GDP compared to developed nations, which usually are above 50%. Despite the low mortgage penetration rate, there are considerably good numbers of mortgage lenders in the country currently at 15, including banks and micro lenders.
According to the Central Banks report, the number of mortgage accounts in Kenya was estimated at 22,013 as at December 2014, having increased by 2,134, or 10%, year-on-year from 2013. The size of the Kenyan mortgage portfolio is estimated to have been valued at Kshs 164.0 bn as of December 2014 from Kshs 138.1 bn in 2013, representing a growth of 18%. On the other hand, the average mortgage loan size grew from Kshs 6.9 mn in 2013 to Kshs 7.5 mn in 2014, a growth of 8.7%. Despite the 18% growth in the overall loan book, the number of mortgage accounts increased only by 10%, an indication of low mortgage uptake.
Despite having 15 mortgage lenders in the market in a country of 43 million people, we only have 22,000 mortgages. The demand for mortgages is still relatively low because of the following reasons:
- Kenya is an agricultural based economy and most rural citizens live in their own houses;
- Low incomes levels that cannot service a mortgage;
- Soaring property prices,
- High interest rates, which discourage potential homeowners from borrowing. High interest rates in the market have become the major hindrance for home ownership with commercial banks offering mortgages at an average rate of 15%, with the most expensive at 18% and the cheapest being 12.9%;
- Expensive initial costs when taking a mortgage.
With the increased urbanization and the growth of the middle class in the country there is need to look at better ways to address the housing issues in the country. The following are some of the ways that this can be achieved:
- Provide avenues and incentives for private sector involvement in the provision of affordable quality houses, such as what the Nairobi county is doing with the redevelopment of the city estates to increase the density of most of them;
- The development of infrastructure to open up satellite towns will enable developments in areas where land prices remain affordable;
- Improved access to credit information and analytics to better price risk and also increase information in the market;
- Deepen capital markets products that promote real estate development for affordable segments. It should concern us that since the 2007 approval of regulatory framework for asset backed securities, ABS, and the 2013 approval of the regulatory framework for REITs, there isnt a single product from either.
In summary there is a huge opportunity in the provision of affordable mortgages in the country given the demographic trends in the Kenyan economy: a young and growing population, growth of the middle class and rapid urbanization.
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