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Ray of hope for future home buyers

By David Mwitari | January 17th 2019

The number of Kenyans owning homes through mortgages could drastically rise by next year if efforts by the Government and private lenders materialise.

Other than the pivotal role expected to be played the yet-to-be-launched Kenya Mortgage Refinance Company (KMRC), top home loan lenders are rolling out plans to increase the uptake of mortgages.

For instance, KCB Bank Kenya, the country’s biggest bank by assets, said it plans to have 20,000 mortgages in its books by the end of 2020.

CEO Joshua Oigara said the lender would also increase repayment periods.

“What we should be looking at are individuals who want long-term loans of 15 to 20 years,” he said.

The formation of KMRC has brought optimism to the mortgage market, which for a long time has not registered any meaningful growth.

The Government-backed entity, which is expected to launch next  month, will provide low-cost home loans, thus enabling more Kenyans to buy homes through mortgage.

According to the Central Bank of Kenya’s Bank Supervision Annual Report 2017, there were a total of 26,187 mortgage loans with a total value of Sh27.3 billion as at December 2017. The average mortgage loan size stood at Sh10.9 million.

The report indicated that KCB had a total of 6,494 mortgage accounts by December 2017, while HF Group, the second-largest mortgage provider in the country, had 5,071 mortgages, and Standard Chartered Bank had 2,379.

Cash purchase

The Kenya Integrated Household Budget Survey 2018 found most people prefer to construct their own homes as opposed to taking a mortgage. Others said they purchased their houses in cash.

The survey found that 83.1 per cent of homes were constructed without a loan, while 3.1 per cent were purchased in cash. About 3.7 per cent were constructed or purchased using a loan.

Most home owners cited affordability as the main reason they shied away from mortgage financing.

Until the interest rate cap came into force in 2016, lenders were charging high rates on loans, with some going as high as 24 per cent.

With the expected launch of KMRC in February, affordability will no longer be an issue. The firm will provide cheaper long-term funding to lenders, thus lowering the cost of mortgages.

The Government will put Sh1.5 billion into the agency for a 20 per cent stake, while commercial banks, credit unions and development agencies will take up the rest.

“KCB is participating in the KMRC initiative and we see this as a great avenue to transform the housing market in Kenya,” said Mr Oigara.

Samuel Muturi, KCB’s director of mortgages, said KMRC is a welcome initiative as it will help provide long-term liquidity to primary mortgage lenders, which are mainly commercial banks.

Affordable mortgages

This, he added, will boost the affordability of mortgages and help achieve the bank’s strategy in the growth of the mortgage asset.

“Affording a mortgage has two aspects to it: availability of affordable housing units and access to long-term affordable end-user credit. By leveraging technology and through the Government’s support, we are slowly addressing the high cost of housing units with the aim of bringing the prices as low as practically possible,” Mr Muturi said.

Kenya Bankers Association CEO Habil Olaka added that all banks were invited to contribute to the pool, and most of them have expressed interest in contributing into KMRC.

Being a long-term financing model, it will help address the supply side of financing housing, he said, adding that this would make homes accessible and affordable.

“The challenge in the mortgage sector has been both on the demand and supply sides. Banks have not been addressing this and KMRC will be largely tackling the supply side by providing long-term funding.”

Among the banks that have already announced that they will contribute to KMRC are HF Group, which announced it would be selling its existing loans to KMRC, KCB Bank and Standard Chartered Bank.

Kenya’s real estate market has recently been affected by a dip in home sales, which resulted in a rise in related loan defaults.

According to a 2018 Central Bank of Kenya quarterly report, 11.3 per cent of the Sh392.7 billion gross loans extended to investors in land and houses by commercial banks were not being serviced as at the end of June.

The report found that non-performing loans in the sector rose by 15.8 per cent between April and June last year to Sh44.4 billion compared to the previous quarter. Property developers recorded the highest growth in loan defaults compared to other sectors.

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