What we need to do to increase home ownership in Kenya

Social investors and impact investors can catalyse the production of affordable housing. [PHOTO: WILBERFORCE OKWIRI/standard]

Kenya’s property market is the third most developed in sub-Saharan Africa behind Namibia and South Africa. In Kenya, real estate is seriously overvalued, thanks to high housing demand in the face of an acute shortage. The average price for an apartment in Nairobi is currently Sh11.58 million, up from Sh5.2 million in December 2005. There is no home on the formal market selling below Sh2 million.

Last year, the Central Bank of Kenya and the World Bank released a report showing that over 90 per cent of Kenyans cannot afford to buy a house even with the aid of mortgage loans. The report also revealed that only eight per cent can afford a mortgage.

Increasing access to high quality affordable housing has a profound impact, both for the individual and the society at large. Yet, housing is a challenging and capital-intensive sector characterised by delays and regulatory difficulties. It is time for social entrepreneurs and impact investors to recognise the need to catalyse and support affordable housing across emerging markets. If we are to improve the lives of the poor, we cannot overlook housing, especially as cities rapidly expand and the need for housing grows.

Social investors and impact investors can catalyse and support the production of affordable housing in the following ways:

Government

The government should step in by offering incentives to developers. Since the government is not a profit making entity, it should waive value added tax to developers who build low-income houses valued in the excess of a certain amount, say Sh12 million. The government should partner with local banks to offer tax deductible benefits that can be passed to the buyer in terms of price reduction and therefore increase mortgage uptake.

Banks

i) Project finance

The cost of finance is one of the most prohibitive factors in the Kenyan market. Most banks are currently charging an interest rate of 18 per cent. Banks should consider giving developers reasonable rates to enable them finance their projects. Banks should also disburse funds within a reasonable time.

ii) End user finance

Once a project is completed and the homes are built, the big question is: How will the buyer finance it? This is a critical question especially when it is in relation to low-income buyers. Banks in Kenya typically lend to high- and middle-income clients. Yet, even if low-income borrowers were to be approved, interest rates might be too expensive. Banks should develop products that target low-income home owners. They should lower the interest rates at least for the low-income earners.

Buyers

Many potential homeowners with clear credit records would love to own property in Kenya but most of them have preconceived notions that make them reluctant to borrow money from any bank or other credit institutions to buy a house. First-time homeowner clinics should be conducted countrywide, preferably sponsored by banks in partnership with government agencies to educate people about loans and mortgages and candidly give them the best options that would specifically apply to them and their financial needs.

Developers

Developers should offer homes targeting low-income earners. They should liaise with the government and financial institutions to come up with a way to provide homes that are affordable to low-income owners. The market for high-income houses is becoming saturated, low-income housing is the next best avenue for developers to focus their attention on. This is where most people who don’t own homes are; developers should realise that there is money in numbers.

We need more impact investors and social entrepreneurs in the fight for affordable homes. Affordable housing is not easy, but it is also not impossible. Great risks yield great rewards, we need to come out of our comfort zones and not only be influencers but pioneers who support work that will result in significant impact. The housing sector is in desperate need of investors with patience, creativity, and risk-taking.