Nairobi leads in uptake of housing development loans

Kenya: Nairobi, Kiambu and Mombasa recorded the highest uptake of loans for housing development in the 2012/2013 period, according to the latest national housing survey.

The survey showed commercial banks advanced Sh6.3 billion worth of housing loans to Nairobi residents with Kiambu having Sh482million ahead of Mombasa County at Sh408 million.

It also emerged 15 out of the 47 counties did not borrow any money for housing development, with the most notable ones being Tana River, Taita-Taveta, Lamu, Marsabit, Tharaka, Kitui, Makueni, Turkana, Samburu and Elgeyo Marakwet, among others.

Central Bank data over the same period showed that commercial banks advanced Sh78.9 billion loans or 6 per cent of the total loans reported to the real-estate sector.

A majority of Kenyans still rely on savings rather than loans to finance building of their houses, the survey shows. It also indicates over half (52 per cent) of the 9.1 million households surveyed across the country drew from personal belongings while 39 per cent relied on loans from various of financial institutions

internal savings

However, institutions developing housing heavily depended on loans from financial bodies, with 78 per cent relying on loans and 53 per cent relying on internal savings.

Other sources of financing for housing among Kenyans in terms of preference are instalments from buyers, investment groups, retirement benefits and others. Gifts or inheritance represented only 1 per cent of sources of funding.

"Limited access to finance is still a major limiting factor in housing development. The sources of funding are few and the lending institutions cannot be said to reach all the target groups," the survey released by Lands and Urban Planning ministry revealed.

According to the survey, the main source of loans for housing development were commercial banks, housing finance institutions, microfinance institutions and co-operatives, among others. In addition, it revealed that more than 90 per cent of the financiers did not have specific products geared towards saving for a mortgage.

About 68.4 per cent of commercial banks offered loans for land acquisition, while 71 per cent financed construction units for sale. Construction for rental units were financed by 78.9 per cent of the banks and 80 per cent indicated having funded construction for owner occupier.

"Lack of long-term capital was ranked high as a key barrier to mortgage and construction financing at 34.3 per cent followed by fluctuating interest environment at 19.4 per cent and high default rate at 16.4 per cent. The least ranked was lengthy legal processes for recovering non-performing loans at 6 per cent," revealed the survey.

Lands and Housing Cabinet Secretary Charity Ngilu said there is need to address the high interest rates, which keep mortgages out of the reach of majority of Kenyans.

She challenged financial institutions to come up with innovative ways of keeping interest rates low.