By Jackson Okoth

Diaspora purchases are pushing up sales in the mortgage business as more and more individual retailers keep off the property market.

"We have seen a significant uptake, driven largely by the more affluent buyers in the Diaspora, especially the UK and USA, who are unbundling their investments in these markets, to purchase apartment blocks here," Housing Finance MD Frank Ireri said while announcing the firm’s half-year financial results.

The mortgage lender receives an estimated 17 per cent of its business from the Diaspora.

He, however, admits that there has been a significant slowdown in the number of individual retail borrowers seeking mortgages in recent months.

Housing Finance (HF) released its half-year results at a time when the economy faces a looming energy, water and food crisis.

Demand for affordable housing has yet to be met by industry players (Inset: Housing Finance MD Frank Ireri). Photo: Jenipher Wachie / Standard

The company recorded a 124 per cent increase in pre-tax profit for the half-year period amounting to Sh132 million compared to Sh59 million made over the same period last year.

Its sales went up 98 per cent to Sh 5.4 billion, up from Sh2.7 billion recorded in June 2008.

HF’s balance sheet size has also grown since the rights issue, to reach Sh15.9 billion, supporting a total loan book valued of Sh12.8 billion.

But as the mortgage sector remains cushioned from the global recession, fears of an increase in interest rates is still looming.

In a worst case, a spike in lending rates could spark off numerous defaults in the mortgage business, presenting serious problems to financial providers and homeowners.

Moves by Central Bank, through its monetary policy committee to push down lending rates continues to draw mixed reactions.

There is a feeling that how interest rates move will depend on how Treasury finances the huge Sh109 billion deficit.

CBK has reduced the bank rate to 7.75 per cent, up from eight per cent and cash ratio from five per cent to 4.5 per cent. "Interests rates are unlikely to come down any time soon. But we are confident that CBK will keep them from rising any further," reckons Ireri.

An increase in interest rates could trigger defaults in the mortgage business, increasing the company’s load of non-performing loans, currently at Sh1.9 billion, down from Sh2.3 billion last year.

Given its capital base and balance sheet size, Ireri says HF has more headroom to grow and take up more deposits, up to Sh24 billion.

The firm expects its recent initiative of affordable housing to drive volumes and help sustain high growth this fiscal year.

"We now have additional capacity to provide affordable housing solutions through innovative mortgage financing and as well as high yielding savings accounts. We hope to do more volumes this year, mainly in these segments," said Ireri.

Market indicators show that while there is increasing interest among first-time homebuyers, their ability to finance under the current economic environment appears to be their biggest hurdle.

Rising inflation and high cost of living are also leaving many individuals without enough to savings.

"Demand for affordable housing has yet to be met, especially for the middle and low income earners," Ireri told FJ.

He cites delays in the passing of the Housing Bill 2006 for the lack of momentum in these market segments.

Among the key challenges facing provision of low cost housing includes high cost of land, poor infrastructure and lack of incentives and tax breaks to encourage developers.

To remain visible in a receding market, HF has launched a supersaver account to entice individuals to not only save, but also start working towards buying their first home.

Crossover account holders can earn up to 10 per cent interest on their savings and 100 per cent financing once they achieve the minimum deposit for mortgage.