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Era of landlords who can’t ‘afford’ a home

By Peter Muiruri | Published Thu, August 13th 2015 at 00:00, Updated August 13th 2015 at 05:23 GMT +3

The statistics have remained constant: The housing deficit in Kenya stands at 200,000 units annually. This is despite new apartments, bungalows and townhouses coming onto the market almost daily.

Most of the additional housing stock targets the upmarket suburbs of Kilimani, Kileleshwa, Lavington and Westlands.

The Encasa project in Syokimau was the first large-scale, starter-homes project.


With a unit here selling for tens of millions and interest rates hitting the roof, many would-be homeowners are left with the only other option – renting. But a number of developers have been putting up starter homes with introductory prices that appear favourable to those in the lower segment of the market.

Among the first to go this route was Suraya Property Group with their Sucasa development. The 900-unit project comprises studio, one and two-bedroom homes, with introductory prices ranging from Sh900,000 to Sh2.85 million for cash buyers.

“It is possible for many people who are currently living in servant quarters to become homeowners as most of them are in decent jobs that can easily qualify them for mortgages,” says Suraya Director Sue Muraya.

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Not far from this project is First Homes, another ‘affordable’ project comprising 250 units of studios, one-bedroom and two-bedroom apartments, with unit prices ranging from Sh1.5 million to Sh3.6 million. These too, according to the promotion brochure, are targeting first-time homeowners.

The latest entrant in this segment is Karibu Homes, a development that was unveiled in April this year at an event presided over by suspended Housing Cabinet Secretary Charity Ngilu. Karibu Homes’ Riverview Estate will comprise 1,074 units selling for between Sh1.6 million and Sh5 million.

Despite the myriad of upcoming projects targeting the lower-market segment, questions still abound about the affordability of these houses. The other question is whether they are actually being taken up by the intended recipients.

Aaron Gitonga, a director with Rogam Investments, the developers of First Homes, says the pricing of their units should be favourable to young people and other first-time homeowners. According to him, this segment is the next frontier in home-ownership owing to what he terms as a “glut in the high-end segment”.

Reasonably priced

Still, a rider in the sales brochure introduces yet another group targeted by these developments. “These units provide a great chance for investors looking for reasonably priced apartments,” it says.

Sakina Hassanali, research and marketing manager at Hass Consult Ltd, says it will take time before a majority of Kenyans become homeowners.

While lauding the initiatives by the developers who are focusing on the lower end of the market, Ms Hassanali says such homes are not the solution for the home-ownership dilemma.

Using a hypothetical example of a home selling for Sh1.5 million, she says a new owner needs to commit at least Sh30,000 to mortgage repayments for a house whose rental value is Sh15,000 a month.

Assuming that the person is spending a third of his or her salary on mortgage repayments, then he or she needs to be earning a net salary of Sh100,000.

“In other cases, mortgage repayments are almost three times the rental value. It only makes sense for an investor to buy the house for letting purposes, considering that rental values rise at an annual rate of six per cent. More than that, house values increase by one hundred per cent in just three years,” says Hassanali.

She notes that developers targeting the low-end market are helping to increase much-needed rental stock that has the trickle-down effect of lowering rental prices across the board. “Until the ratio of mortgage repayments to rent (2:1 currently) is levelled, new homes intended for the lower segment of the market will continue benefiting investors in the sector. It is much easier to buy the house and rent it out than make it your home. This is a case of one becoming a landlord before owning a home,” she says.

Picture a family that can afford the Sh1.5 million house that is too small for them, but cannot buy a bigger house to suit their needs. They buy the smaller house and let it out and continue paying rent themselves.

James Mugerwa, managing director of Shelter Afrique, the pan-African body that has invested millions of dollars in this segment, says the financing options need to be retooled to meet the expectations and accessibility of the lower end of the market, especially for those who are not able to tie down resources via mortgages or other financing modules.

He adds that currently, the market faces increasing disagreement on just what an affordable product should look like, with both developers and consumers having a different definition of what they think it ought to be.

According to him, developers look at the bottom line before taking on any large-scale project and this may account for the little attention that has been given to the lower segment of the housing market.


“It is all about margins. You have to realise that a housing project can take up to five years from ground-breaking to sale. You have investors tied down for such a long period before they start getting their money back. That duration is longer for affordable housing projects. This is compounded by the fact that building materials are expensive as most of them have to be imported with knock-on effects on the prices of the final units,” he says.

In a recent opinion piece in this magazine, Ian Henderson, managing director of Superior Homes Ltd, stated that many developers do not have incentives to construct houses for this market, since they have to lay basic infrastructure that is costly regardless of the market segment they focus on.

“The talk in Kenya has been to deliver the so-called low-cost houses selling below Sh1.5 million. On paper, this is quite possible but difficult to achieve in practice. The key ingredients for a successful recipe are a good location, suitable and affordable land, planning permit, National Construction Authority permit, reliable power and water supply, sewerage system, road access, adequate drainage and reasonable legal and Land office registration fees. Simply put, there is no incentive for a developer to jump through all the above hoops in order to build low-cost housing because these are the same hurdles for middle and high-cost houses that produce higher profits,” he wrote.

Are there some incentives that the Government can consider so as to reel reluctant developers into this market?

While tax rebates on housing units selling below a pre-determined figure have been suggested, Mr Mugerwa feels other available vehicles such as land swaps, coupled with private-public-partnerships will go a long way in enticing more investors to fund housing projects in the lower segment. “Without projects of this scale, we are barely making an effort to plug the housing deficit,” says Mugerwa.


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