Why tenant purchase plan could work

SUMMARY

• Africa Tenancy Initiative is a scheme bringing together more than 35 Saccos, financing institutions and other property development partners
• Under the scheme, the International Finance Corporation (IFC), will offer partial credit guarantee for the housing projects, while Co-operative Bank and Shelter Afrique will provide short-term financing to steer the scheme
• Kenya Bankers Association says a majority of tenancy purchase schemes succeed when undertaken by institutions with both strong financial muscles, disposable assets in terms of land and strong membership back-up

The National Housing Corporation and the National Social Security Fund have been the biggest players in this area. And now, the tenant housing purchase plan is back in the limelight after the unveiling of the Africa Tenancy Initiative. This is a scheme that is bringing together more than 35 Saccos, financing institutions and other property development partners.

“We have done an analysis of the Kenyan housing market. More than 90 per cent of Kenyans are tenants owing to the level of income that they get. Under this scheme, we are converting their rent payments to make them homeowners. You just pay the deposit and the balance as rent,” says David Ndegwa, who is the business development director in the scheme.

This has come at a time when according to the Ernst and Young 2015-2016 report, more than Sh600 billion in savings is stashed in Kenyan banks having not been loaned or put into any use.

This money is mainly from Saccos and banks who have shortened their lending hand. Through the African Tenancy Initiative, the partners are looking forward to tap into some of these funds with the Saccos getting on board alongside other financial institutions.

“If we put into use only 30 per cent of the amount that banks and Saccos are stocking and also utilise the available land to propagate low cost housing programs to sell at affordable rates to the Sacco members who subscribe to the scheme, we will bridge the gap of the un-housed,” says Ndegwa.

According to Ndegwa, it is expected that in the scheme, the International Finance Corporation (IFC), the World Bank’s private sector lending arm will offer partial credit guarantee for the housing projects, while Co-operative Bank and Shelter Afrique will provide short-term financing to steer the scheme.

However, such rosy schemes have hit Kenyans hard of late after a colourful start and later crumbled.

Professor Banji Oyeyinka, a former director and regional coordinator for Africa with UN Habitat who steered several tenancy purchase programs in the region says that it is not easy to alleviate the fear among targeted members of such schemes due to their attractive and almost unbelievable terms.

“Tenant purchase schemes have been around for over 40 years now. However, they have been underground since they have been mainly focusing on those in the public service,” says Banji.

Speaking to Home & Away, Banji said that there is a lot of risk involved in any housing plan targeting low income earners since it has to be affordable after all, owing to the kind of people being targeted, however, if the risk is spread amongst a group, the risk reduces to marginal levels.

“In tenancy schemes, it is less risky for someone to subscribe to them if the liability ought to be spread amongst a group as compared to when individuals bare the entire liability. This is the reason why Saccos, banks and co-operatives mostly succeed in such schemes,” says Banji.

Credibility

Banji says that the larger the group that is bearing the cost, the more credible the plan becomes. Equally, transparency should be paramount where people can get all facts on the table any time they feel like. “For credibility purposes, the rules should be simple. Also the people undertaking such kind of schemes should at least undertake two or three successful projects first to assure members that it will not crumble mid-way,” Banji says.

Eli Oyugi, the chairman of Kenya Bankers Association says a majority of tenancy purchase schemes succeed when undertaken by institutions with both strong financial muscles, disposable assets in terms of land and strong membership back-up and later citing how easy it has been for institutions like NSSF and National Housing Finance have managed to succeed.

“Tenancy purchase schemes’ financing is pegged mostly on factors like land, and members’ disposable income strength,” Oyugi says. “For financiers to come in you ought to have land which can act as collateral to the huge loans you take alongside the property to be developed which makes it easy for financiers to know how they will recover their money,” he adds.

Oyugi says affordable housing schemes such as the tenancy purchase plans will always excite the housing market in whichever way you look at them. “Mostly, these programs make money by making the price of the object to be financed known after factoring all their cost within the marginal price avoiding bringing in the interest clauses,” says Oyugi.

Repayment period

He says that they end up recovering their money through rental premiums after the buyer agrees to pay a premium over that initial price. In such a contract, the financing partner must own the item at the time the customer buys it from the institution.

For the African Tenancy Initiative, buyers will pay between Sh14,000 to Sh45,000 per month depending on the size of the house bought with a flexible repayment period of up to 25 years. Some of the projects said to be part of the scheme include Sh2 billion Sunset Boulevard phase two which is located in Athi River, Komarock Wendani Heights, Karen Heights and Art Stone in Juja with 400 apartments and the Habitat Heights in Athi River which is made up of 5,200 units.

According to a June report by Cytonn Investment on the country’s credit and lending facilities, capping of interest has denied many low income individuals from getting loans and that has affected also the financing of the building and construction sector.

The Kenya National Bureau of Statistics economic outlook report also pointed out that in 2017 loans issued in the construction sector contracted marginally by 1.4 per cent from Sh106.3 billion in 2015 to Sh104.8 billion in 2016.