By Morris Aron
Financial institutions are angling for a piece of the low-end mortgage market as record breaking interest rates and skyrocketing property prices slow business in the high–end.
Trends in the last two months show that at least three firms have launched low-cost mortgage products targeted at the lower middle class and those in the informal sector.
Real estate experts say the emerging inclination was bound to happen due to the ongoing market correction for residential property in the high-end market due to an oversupply a few years ago, the recent spike in interest rates and the stagnating pricing trends in market categories previously seen as cash cows.
“The property market goes through cycles and adjusts itself accordingly depending on the economic scenarios at hand,” said Andy Colette, the managing director of Pam Golding-Kenya, property firm headquartered in South Africa.
“It happens all over the world. For Kenya, next you will see is players coming together to drive a common agenda that comes with challenges of funding low cost housing and the need to proper data to inform investment decisions.”
Just recently mortgage firm Housing Finance signed a partnership with Jamii Bora Makao, a low income housing company managed by Urbanis Africa, where home buyers can access mortgage and construction loans of between Sh1.5 million to Sh4.9 million.
The move was followed by Chase Bank’s subsidiary—Rafiki DTM—with a low cost mortgage product where potential homebuyers can secure loans from as low as Sh1 million to Sh3 million payable over a 10-year period.
Rafiki plans to finance 100 per cent of the construction costs for individuals with land, and an additional 70 per cent of the cost of land for people who do not already have land at 18 per cent variable interest rate.
“The prospects in housing microfinance are very strong because most people are either in the informal sector or are low-income earners,” said Daniel Mavindu, the firm’s managing director.
The rush for low-end housing follows years of talk over the need for a structured way to facilitate home ownership among middle and low-income earners.
The momentum is also gathering pace at a time when house prices in the high end of the market have stagnated with dwindling returns witnessed every year.
“To address the housing shortage we need a low cost housing financing model and the supply of fairly priced houses,” said James Ruitha, the managing director of National Housing Corporation. High interest rates slowed down the uptake of mortgages in the first quarter.