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Functional or dream house? Where to start for first time owners

With high mortgage interest rates and tough lending conditions, many people cannot afford a home. [iStockphoto]

Owning a home is a dream for many people. It comes with the peace of mind that you do not have to deal with the landlord every month.

For those who are able to afford, a mortgage is a preferable route to owning a home.

Others may choose to save with a Sacco, for instance, and then build the house over time through borrowings.

Whichever way, as experts now advise, whenever you seek to own a home –particularly your first - you should probably consider a functional rather than a dream house.

This was one of the issues raised during a recent affordable housing conference in Nairobi organised by the Kenya Mortgage Refinance Company (KMRC). 

Do Kenyans need a functional home or a dream home? What are developers selling to buyers?

It was the same question that KMRC Head of Credit Geoffrey Mwaura attempted to tackle sometime before the conference in a similar platform organised by Absa Bank.

Mwaura said prices of houses change over time and it may not be ideal to save for your dream house.

“The nominal price of a two-bedroom house last year is different this year. A two-bedroom house in Kilimani is different from one in Embakasi,” he said Mwaura.

“Look at a functional house and not a dream house.”

He said a functional house will serve in the short term and allow the owner to access equity in order to build their dream house in the future.

“Today, when we look at inflation, cost of building has escalated by over 40 per cent. Land prices have escalated as well. Therefore, you need to make a decision now rather than wait.”

So what is a functional house?

Prices of houses change over time and it may not be ideal to save for your dream house. [iStockphoto]

“This is a home that addresses your day-to-day living requirements,” said Mwaura.

However, with the current regulations on building that seem to favour a dream house rather than a functional one, many people are being held back from owning a home.

For example, a container house is not regarded as a permanent dwelling as per the building code yet it can be a suitable option for one to set up a functional home.

Mwaura said if the building code is changed, and there is a conversation to that effect, then such structures can be adopted and will rope in investors into the space.

“At the moment there is the aspect of insurance, which will cover that (container) house,” he said.

Affordable housing

The challenge with the building code was also noted at the KMRC affordable housing conference, which Maurice Makoloo, Habitat for Humanity Area vice president alluded to.

“It could be the building code that we need to recognise some other types of materials and other processes that may not be recognised at this point,” he said, noting that the industry has newer and cheaper materials that can be adopted to ultimately lower the cost of construction.

Due to the high cost of mortgage, unless one benefits from the KMRC’s sponsored one-digit interest rate, Saccos appear to be the other option for Kenyans to own that functional home.

This is because Saccos are not only flexible in terms of disbursements of loans compared to banks but also are more understanding of their clients as they can customise to their earnings.

“Clients build their houses the way they can afford,” said George Kinyanjui, a director at Kenya Women Microfinance Bank.

“We call it incremental housing. The house may not be as big as someone else’s but it is the dream of this customer.”

He said clients can take one loan, pay within five years within which they build a kitchen and later borrow more to add a room or another extension or toilet.

“And you find in three to five years they have a home. For us we are privileged when we go to the rural areas, and we find the clients are very comfortable,” said Kinyanjui.