Expensive loans, lack of infrastructure hinder affordable housing dream

A Residential building in Pipeline, Nairobi (PHOTO;WILBERFORCE OKWIRI)

NAIROBI, KENYA: Plans to build affordable housing in the country are being hindered by acute shortage of finances, serviced land, poor urban planning and lack of regulatory framework.

Stakeholders attending a meeting organised by the Kenya Property Developers Association (KPDA) on Tuesday heard that while the government outlined several modes of financing in this year’s budget, developers are still in the dark on how the measures will be implemented.

“It’s challenging for developers to obtain construction finance loans, particularly since interest rate cap came into effect. Due to high cost of financing, property prices have been rising,” KPDA said in a statement.

Life is not any easier for potential home buyers who cannot raise the collateral needed to secure a mortgage. High cost of mortgages has made them unattractive to most home buyers.

Restricted lending

“Banks are liquid but are not lending to prospective mortgage buyers. The government is also clouding out the private sector that urgently needs these funds for housing the masses. Loansneed to be long-term, perhaps a 20-30 year lifetime,” said Palkesh Shah, the founding KPDA chairman.

Currently, Kenya has about 24,000 mortgage accounts against a population of 44 million. Treasury Cabinet Secretary Henry Rotich said there are plans to review the interest rate cap that has curtailed the flow of funds to both the developers and end users. Whether banks are willing to play ball is a different issue.

With the cash crunch, developers were urged to consider using their resources to build homes for the lower segment of the market instead of the prevailing situation where much of the developments have focused on the middle to higher end segments of the market. “Developers must go to lower segment of the market or be out of business. The high end is no longer as enticing as before. We can maintain margins by bringing down construction costs through less expensive finishes, fittings and internal fixtures,” said Zoravar Singh, a member of KPDA’s Affordable Housing Task Force.

Singh said affordability of housing may be increased by making use of basic materials with the provision that home owners can make improvements on the house over time through an incremental housing model.

He said that low-income earners in Kenya can afford a home worth less than Sh4 million while those in the middle-income bracket can finance a home worth more than Sh4 million.

“This assumes that an average low-income family with a combined income of Sh30,000 to Sh120,000 can afford to pay a mortgage instalment of between Sh10,000 and Sh40,000. Such as house will be priced between Sh900,000 and Sh3.8 million,” he said.

Inefficiency in the registration of property also came under sharp scrutiny. According to the 2017 Doing Business Survey, Kenya was ranked 121 out of 190 with respect to property registration.

Here, it takes nine procedures and an average of 61 days to register property in Kenya.  In many instances, this process has taken close to six months.

The process is further complicated by devolution with different counties showing different levels of efficiency.

Developers say such bureaucracy brings out other hidden costs in real estate development, including an additional six per cent that needs to be added to the unit cost for incidentals such as stamp duty, legal fees and valuation fees, or “facilitation” fees.

Alternative technologies

To reduce construction costs, developers need to embrace Alternative Building Technologies (ABTs), shunning the often-repeated analogy that such alternative materials are inferior.

Andrew Saisi, managing director National Housing Corporation, said the use ABTs reduces the dead weight of a building thus allowing more usable space to be added.

“You can build more by using the same foundation through the use of ABTs than the conventional brick and mortar. There is no need to build a house to carry its own weight. We build for people,” said Saisi.

But financing is just one aspect in the provision of affordable housing. Developers also cited lack of serviced land as a drawback.

Mary Chege, the principal at EMSI and Associates and who has advised governments, state-owned corporations and international companies primarily in the energy and infrastructure sectors in sub- Saharan Africa terms it as the infrastructure deficit.  

“There is inadequate capital investment in new infrastructure. For the 500,000 houses, we have Sh140 billion in infrastructure deficit,” she said.