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Inside 20,000-house construction deal signed last week

By Peter Muiruri | Sep 29th 2016 | 4 min read
By Peter Muiruri | September 29th 2016

Suraya Property Group's Peter Muraya, Dr Xing Quan Zhang Chief Urban Economy and Finance Branch, UN Habitat, CSD James Macharia and Chi Jianxin Chairman CADFund when they signed the MoU. (Photo: Jonah Onyango/Standard)

Four months into his presidency, Uhuru Kenyatta made his first visit outside of Africa to China. In tow were close to 60 business people with various interests in China.

There were infrastructure deals to be made, foremost among them the funding of the new Standard Gauge Railway from the port city of Mombasa. But one man in the entourage had his sights trained on a different kind of a deal.

Peter Muraya, the CEO of Suraya Property Group, was intent on meeting the president of China-Africa Development Fund (CAD-Fund), Chi Jianxin. Muraya’s aim was to interest the CAD-Fund boss in a joint venture that would see the funding of mass housing projects in Kenya.

CAD-Fund is the first Chinese equity investment fund that solely focuses on investments in Africa. It was one of the eight measures announced by the then Chinese President Hu Jintao at the Beijing Summit of the Forum on China-Africa Cooperation in November 2006.

The fund aims to encourage and support Chinese businesses to invest in Africa. At a summit in Johannesburg in December 2015, Chinese President Xi Jinping announced an additional $5 billion (about Sh500 billion) for the China-Africa Development Fund, which makes CAD-Fund reach a designed total capital reserve of $10 billion (Sh1 trillion) to be operated by China Development Bank. It is this huge pool of resources that Muraya had in mind during the trip to China.

“I had only one chance to convince him that it was possible to partner with the fund in constructing thousands of houses for Kenyans whose dreams of owning a decent home were fading by the day,” said Muraya.

That initial meeting saw a flurry of activity between him, CAD-Fund officials and a construction firm in China, China Civil Engineering Corporation Company (CCECC).

According to Muraya, the Chinese partners wanted to hear figures they could relate to, figures that made business sense. They also needed to know the capacity of Kenyan firms in overseeing huge projects. The stakes were high.

Last Thursday, a beaming Muraya saw his efforts come to fruition as a Memorandum of Understanding was signed between the two Chinese entities, Suraya and the Kenya government.

In the deal, government employees, including civil servants, police, military and parastatal workers will, through a tenant-purchase scheme, benefit from the initial construction of 20,000 houses in different counties within a span of 18 months.

Although the exact cost of the entire project was not revealed, it could run into tens of billions, depending on the size of the houses.

First phase

Nairobi will see the initial phase of construction that is slated to commence in February 2017, before the project moves to other counties.

According to Muraya, this will be a significant step in addressing the much-hyped housing deficit that stands at 200,000 against an output of 50,000 houses annually. Most of the new homes are in the upper-middle -class and thus out of reach for majority of Kenyans.

While CAD-Fund will provide funding for the project, the national and county governments will provide land at affordable rates for construction and manage the finished units by identifying qualified tenants.

The actual construction will be done by CCECC. Suraya will work on the design and provide project management. The company will also manage any sales to the public.

“This is the first project of its kind in the country and perhaps the region. It is no mean feat for a private company to partner with governments and associated entities in a project of this magnitude. This is a game changer in the provision of houses in Kenya,” said Muraya.

Muraya said the entry of such mega players into the local housing sector is a big step in providing social housing in the country. In Kenya, he said, almost half of housing costs go into buying land.

“Both county and national governments can free up land for home construction. This will bring down the cost of owning a house significantly. Building thousands of units will also mean housing a huge segment of the society and help regulate the prices. We are also exploring the possibility of having the Chinese set up a factory and thus reduce or eliminate the need to import construction materials,” said Muraya.

Besides land, high cost of borrowing has been another issue blighting the prospects of Kenyans who wish to own a home. High interest rates have meant that very few in the lower segment of the market can afford mortgages in the country.

“Kenya is ripe for a secondary home financing option. We must source for funds outside our traditional markets if Kenyans are to enjoy a single digit interest rate as is the case in some developed countries,” said Muraya.

According to Transport, Housing and Infrastructure Cabinet Secretary James Macharia, the new partnership will give local private entities a chance to develop new social amenities.

“Kenya has witnessed huge Chinese investments in the last decade. The signing of an MoU with China-Africa Development Fund to develop 20,000 housing units for our civil servants is a testimony to our strong partnership,” Macharia said duringthe signing ceremony.

Treasure Cabinet Secretary Henry Rotich said the deal was a true reflection of the confidence the fund has in the Kenyan economy.

Rotich said the Public Private Partnership programme has moved to actual implementation of ambitious projects. Kenya has lately witnessed an influx of Chinese companies that have diversified from infrastructure projects to housing estates. A good example is The Great Wall Estate in Mlolongo, Machakos County.

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