How Uhuru Kenyatta is a blessing to mortgage financing

The real estate sector will remember President Uhuru Kenyatta as a leader who created an enabling environment for the sector to flourish. He had the work done by actively participating in its execution.

The launch and progress of the affordable housing programme, one of the key pillars of Jubilee's administration's Big Four Agenda, was one of the most notable and key initiatives of the outgoing regime.

When President Kenyatta took over power in 2013, there were 38.61 million Kenyans according to data from the Kenya National Bureau of Statistics.

Six years into his tenure, the numbers had hit 47.56 million - an increase of nearly nine million. Nairobi had 3.1 million people in 2009, a number which had risen to 4.4 million by 2019. The need for housing kept on rising by the year.

To address the need for housing, affordable healthcare, manufacturing and food security in 2017, the president launched the Big Four Agenda.

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Towards the end of his second term, in August 2022, the Head of State would have overseen the building of 500,000 affordable houses.

It was estimated that Kenya had an annual housing demand of 250,000 units annually with an estimated supply of 50,000.

Only two per cent of formally constructed houses targeted the lower income segments of the market, which account for the largest share of demand, a delivery framework overview document indicated.

The programme was also aimed at shifting markets to allow more people to own homes instead of renting. "The high cost of formal housing means that home ownership is out of reach for most urban Kenyans with the vast majority of this population finding housing through rental markets (91 per cent in Nairobi)," the document further noted.

This dream, which was marketed as noble and problem solving, was hatched in 2013. It was aimed at creating additional jobs, providing a market for manufacturers as well as suppliers and raising the contribution of the real estate and construction sectors to the gross domestic product (GDP).

"To achieve this, the State has been implementing policy and administrative reforms targeted at lowering the cost of construction and improving access to finance for affordable housing," said National Treasury Cabinet Secretary Ukur Yatani in the budget speech for the financial year 2022-23.

"The government has also mobilised resources to support the construction of affordable housing units and social housing units."

He proposed an allocation of Sh27.7 billion for the affordable housing programme.

The Boma Yangu website, the official affordable housing website has 329,731 registered applicants under the voluntary, joint or statutory contributors.

The government has, however, fallen short of hitting the target of the half a million housing units targeted.

Last year, 431 housing units were completed by the State Department for Housing at an estimated cost of Sh741.3 million, according to The Economic Survey.

As of December 2021, there were 3,480 housing units under construction by the same department, with an estimated construction cost of Sh6.9 billion.

To boost many people's chances of living in decent houses, the government 2018 incorporated the Kenya Mortgage Refinancing Company (KMRC), a non-deposit-taking financial institution under the supervision of the Central Bank of Kenya (CBK).

The company was tasked with providing long-term funds to primary mortgage lenders (banks, microfinance banks and saccos) to increase the availability and affordability of mortgage loans to Kenyans.

"KMRC is one of the key institutions under the Affordable Housing Pillar of the Big 4 Agenda. KMRC was established as a public-private partnership with majority ownership by the private sector at 75 per cent and the State at 25 per cent," KMRC's website indicates.

In his budget speech earlier this year, CS Yatani said since September 2020, KMRC had disbursed over Sh2 billion to seven primary mortgage lenders and was at the time processing an additional Sh7 billion.

Among the allocations that he proposed were Sh4.6 billion to KMRC for enhancement of the company's capital as well as for on-lending to primary mortgage lenders.

About Sh8.7 billion was to be spent on the construction of affordable housing units as well as Sh1.2 billion on the construction of social housing units.

Johnson Denge, a real estate consultant, says the outgoing government has made the affordable housing programme a blueprint that will be used by governments to come.

"It has been institutionalised and is not a project that will go with the exit of the government," he says.

The rampant issuance of title deeds to millions of land owners, who had lived for years without any document to prove ownership of land, has been a big win for real estate, according to Mr Denge.

The regime has registered over six million titles, which has helped people develop or sell their lands with ease as they enjoy the security of tenure, bettering the state of real estate in the country.

According to the official presidential website, Lands Cabinet Secretary Farida Karoney June 2022 said her ministry had facilitated the registration of 6,100,945 new title deeds.

"This is a very significant number because you'll be happy to note that the colonial government and our first three administrations registered six million so it surpassed the 6 million registered in the past 100 years," said the lands CS.

Mr Denge also credits the government with aligning land laws to the new constitution, and the automation of land records in the country.

This, he notes, has helped in easy land administration and adjudication with easier, faster access to information that was for years hard to locate. This had curbed graft in registries.

The real estate sector contributed Sh375.7 billion in 2013, the first year of Mr Kenyatta's presidency, a figure which, by 2021, had risen to Sh1.1 trillion, according to the Economic Survey.

The payment to workers in the sector was Sh870 million in 2013 and Sh1.2 billion by 2021, a gradual rise only hurt by the Covid-19 pandemic.

The pandemic, which bared its fangs in Kenya in 2020 and 2021, is one of the blots in President Kenyatta's legacy. While he was not responsible for Covid-19, it slowed down activity in many sectors including real estate.

The value of buildings completed in the Nairobi City County (NCC) decreased by 11.9 per cent, to Sh88.1 billion in 2021 from Sh100 billion in 2020 as the pandemic bit hard according to The Economic Survey of 2022.

Building plans approved by Nairobi County declined from Sh153.6 billion in 2020 to Sh102.9 billion in 2021.

According to Cytonn, the pandemic's immediate impact on the sector included reduction of the labour force and disruption of supply chains, "which is expected to translate to longer development periods," a slowdown in building approvals as public offices such as City Hall remained closed and reduced construction activities by developers.

This was aimed at reserving their cash at a time when market liquidity was likely to decline, and little to no collections as Lands Registry was closed hence banks and mortgage buyers were not releasing funding.

Others were a slowdown in collections for those who had purchased off-plan real estate on instalment plans, and "reduced funding to the sector due to general risk aversion during the pandemic", Cytonn said.

Mr Denge says high inflation has seen more Kenyans shelve investment in real estate and instead focus on basic needs. The same was the case at the height of the pandemic.

"There has been a derailment of the market in the last three, four years. Credit is still not flowing freely to the common mwananchi. These economic issues have hurt real estate," he says.

He also argues that overreliance on banks to fund the real estate market has been a misstep, arguing that well-developed capital markets could instead be used for this purpose, growing Real Estate Investment Trusts (Reits) and Development Real Estate Investment Trusts (D-Reits).

Mr Denge said an oversupply of houses in some sectors in the middle-upper class segment has been increasingly detrimental for the sector.

He noted that while the government was keen on improving the state of roads in the country and other transport infrastructure, water and sewerage systems remained largely neglected.

Mr Denge says that the next government should focus on the continued provision of affordable housing, especially as the country's population is mainly youthful and the need for housing will only grow bigger.