Developer switches to low-cost houses

By Patrick Githinji

National Housing Corporation (NHC) plans to make major inroads in the low-end housing market, following a dip in demand for high-cost houses, and a favourable tax regime that entices Kenyans to own homes.

A deal sealed last week between Sahal Construction Company and the state developer to construct 4,500 housing units is clear signal that more developers may target the low-income market.

"Demand in the low-end is growing. The huge housing shortage in this segment is attracting investors," said NHC Managing Director, James Ruitha.

A survey released by Hass Consultants a fortnight ago substantiated the emerging scenario.

Real estate market pundits attribute the strategic shift to newly introduced incentives by the Government.

The survey says demand for up market homes had plummeted, while the middle class with disposable income has been hit by the economic slump forcing them to cut spending.

The pricing of low-cost homes is between Sh 2.5 million for a two bedroomed house, and Sh3.5 million for a three bedroomed unit.

In this year’s Budget, Finance Minister Uhuru Kenyatta reduced stamp duty penalty to five per cent from 25 per cent, to reduce the burden on new property owners and encourage others who have not been able to effect transfers within the stipulated period to do so.

cut penalty

"I propose to reduce the rate penalty from 25 per cent to five per cent and also cap the penalty to the principal amount of duty," Uhuru said when he read the budget in June.

He said the current stamp duty is punitive to the public, because it translates into Sh5 for every Sh20. Uhuru also proposed to amend the Stamp Duty Act to reduce the stamp duty fees on mortgages, charges and debentures from 0.2 per cent to 0.1 per cent that is from Sh2 to Sh1 for every Sh 1,000.

He proposed to reduce the land rate penalty from two per cent per month to one per cent per month because the penalty was too high and made many land owners reluctant to pay outstanding land rent, a trend that discouraged investors.

The Hass Property Index, a quarterly study of housing, indicates the average price of a house in the upmarket suburbs of Nairobi rose from Sh20.4 million to Sh20.5 million.

NHC is optimistic it will reduce the cost of houses for this segment after its Sh400 million fabrication plant in Mavoko is completed in December.

"The plant will ensure houses are in the market faster, and at a relatively lower cost than when using conventional construction methods," Ruitha said.

The corporation has signed an agreement with an Italian construction company, which will supply construction materials. Recruitment of personnel to run the plant is also underway.

"We are waiting for approval from National Environment Management Authority to start construction of the plant," he said.

Ruitha said by using new construction technology, it is possible to save up to 50 per cent of the time taken to construct a house.

"This translates to impressive savings," he says.

"If we want to effectively address the housing shortfall, then we must look at housing as an industrial process and completely change our delivery system," he told Financial Journal.

When the Corporation announced the construction of flats in Madaraka’s estate in Nairobi West there was overwhelming demand.

"Most of the willing buyers committed themselves by paying deposits forcing the Corporation to increase the units."

He said there was high demand for the corporation’s houses in Nairobi West, Langata and Kileleshwa. To overcome the housing shortage, Housing Minister Soita Shitanda said his ministry plans to introduce a series of incentives to attract more home-buyers and developers.

"My ministry has developed a Cabinet memo to woo private developers to construct houses for the low income earners in Nairobi and other urban areas," Soita said.

The annual demand of houses in the country is about 150,000 units and the supply is barely at 35,000 leaving a gap of 115,000.

Earlier in the month the government introduced incentives to lower the cost of housing in the country.

Tax relief

The incentives the Ministry of Housing announced include tax relief for expenditures upon construction of social infrastructure, interest on income accruing from listed bonds used to raise funds for infrastructure and exemption of value added tax on construction or expansion of private universities and official aid funded projects.

To spur competition into the housing sector and sanity Central Bank of Kenya (CBK) has developed a curriculum to train real estates developers.

The training seeks to unlock potential of the sector in Kenya as well as mobilising funds.

While announcing the programme, CBK Governor Njuguna Ndun’gu said long-term finance allows the provision of affordable and adequate housing.

— pgithinji@standardmedia.co.ke