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How Saccos are helping people own homes

By Graham Kajilwa | August 19th 2021

Model of a custom single-level suburban home. [Courtesy]

Low uptake of mortgages has been cited as one of the reasons for the housing shortage in Kenya.

At least two million houses are required to fill the current gap, according to financier Shelter Afrique, but only about 26,000 mortgages are issued annually.

This is largely because banks target people in formal employment, and even then few can afford the mortgages as the interest rates are quite high.

Fortunately for many would-be home owners, savings and credit co-operatives (Saccos) are stepping in to provide affordable financing.

Safaricom Sacco Society Chief Executive Joseph Njoroge says Saccos have become the go-to financial institutions for potential home owners.

“If you look at mortgage penetration, it is less than 10 per cent. There is a very huge gap that can be filled by Saccos,” he told Real Estate.

He said mortgages have for long been a reserve of banks, which is gradually changing with Saccos taking the space as well.

“If you go to the rural areas, 80 per cent of the houses built on land people own has been delivered by saccos,” he said.

Safaricom Sacco, for instance, has two mortgage products that target both salaried and self-employed individuals.

Ustawi, which is one of their products, has a tenure of 15 years at a rate of 12 per cent on reducing balance and needs no guarantors with a minimum of Sh3 million and upper limit of Sh20 million.

There is also the Faraji Ready Homes loan, through Kenya Mortgage Refinance Company (KMRC) - the government-led vehicle on affordable housing.

This product has a tenure of 25 years at eight per cent interest rate with a limit of Sh4 million.

Shelter Afrique is one of the firms that has invested in KMRC. Chief Executive Andrew Chimphondah, while noting the key role Saccos and micro-finance institutions play in affordable housing, said some adjustments should be made in lending.

“One of the initiatives I would say is that you could give them a loan through a card,” he said.

“The card allows you to buy building materials so that the funds taken do not end up being used for other personal expenses such as buying a car. That way you are able to encourage people who want to do it themselves.”

Mr Chimphondah said mortgages may not be the ideal product to support home buyers who are not formally employed.

However, these people can be targeted by setting up retail financial intermediaries that do not have strict requirements on funding.

“This is like what I would call an incremental housing loan whereby if the individuals get a piece of land, they can be getting short loans to fund the construction in stages, from foundation to roofing and finishing,” he said.

“If someone is building by themselves, I think it is a very good initiative but the quality of the house may not be good.

“Of course there may be regulations, but when you give them funding to do it themselves, you can even ask to see an approval plan.”

Chimphondah said apart from Saccos and retail intermediaries, mortgage originators could be used. These are individuals or institutions who link the banks and persons looking for mortgages for a commission.

This could increase the penetration of mortgages in the country and is applied in other countries such as South Africa, whose mortgage penetration is higher than Kenya’s.

“What is unique about Kenya - because land is expensive- is that most developers have come up with plans where they approach land owners and promise them a certain number of units which equates to the intrinsic value of the land.

“Development can then take place so land owners become de facto partners in the house construction,” Chimphondah said.

“For example, if a person’s land is worth two units, you could build 100 units on the land and once finished, you take 90 and the owner of the land takes 10.”

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