Limited knowledge of Kenya’s real estate market dynamics remains a key hurdle standing on the way for the country’s drive to churn out 200,000 units annually.
This is even as the government pushes for affordable housing under President Uhuru Kenyatta’s Big Four agenda.
About 50,000 housing units are getting into the market annually according to the Pan African housing finance company Shelter Afrique.
A discussion by experts among them financiers on affordable housing observed the gaps that exist in terms of credit disbursement and what Kenyans need in terms of housing.
For example, what price range dictates that a house is affordable?
While the range of affordability has grudgingly been averaged between Sh3 million and Sh4 million, such pricing, for example, may not be ideal for individuals based outside major urban centres or low-income earners.
Additionally, heads of Saccos say banks have been getting preferential treatment when it comes to mortgage financing, ‘yet Saccos are closer to the people.’
Stima Sacco Chief Executive Dr Gamaliel Hassan said the limitation of money to Sh3 million or Sh4 million is also a turn off for some.
He notes that while a lot has been done on the supply side to ensure housing units are made available, Kenyans’ consumption is ‘peculiar’.
“Our peculiarity is not only that Kenyans want an affordable home but also a proper home. They want more than a functional home,” he notes. “Sometimes, one could be living in Nairobi but does not want to necessarily own a house in Pangani, Park Road or around Nairobi as they prefer the village yet this option is not easily available.”
“When you look at the environmental and social risk impact provided by World Bank through Kenya Mortgage Refinance Company (KMRC), you find there are restrictions around that. You are not allowed to lend quite a lot to rural areas which I think is a limiting factor by itself,” Hassan pointed out during an affordable housing conference held by KMRC end of December 2021.
Hassan said Saccos need a level playing field to access the same incentives given to the banks, adding that issues like stamp duty exemption are only given to affordable housing schemes predominantly managed by big lenders (banks).
“What about us who are giving mortgages to those who want to buy affordable homes?” he posed. “You cannot give selective incentives then expect affordable housing to be there. Saccos are not second class citizens, we are as good as the banks are.”
He said Saccos are ‘on the ground’; always closer and available to the customer. “That kind of availability is very important that you avail all of these (incentives) across the whole platform and then I can assure you, you can have much more in terms of affordable housing space,” he said.
Geoffrey Mwaura, head of credit at KMRC said the strength of Saccos lies in their closeness to members and their connection to them, adding that the shareholding of KMRC includes 11 Saccos, eight banks and one microfinance.
“With that diverse shareholding, we are able to reach our diverse customer base,” he said. “That uniqueness has enabled us to bring a new perspective to the mortgage industry.”
He stated that when KMRC was incorporated, they realised some capacity gaps and issues in Saccos. As such, they came up with capacity-building programmes to move them to the same level as banks.
These programmes covered issues to do with human resources, system capacity, policies and procedures and mortgage programmes which involved getting approval from their regulator -Sacco Societies Regulatory Authority (Sasra).
“That programme has gone to a two-year cycle to the extent the Saccos were able to get approval for a mortgage product. And with that, they can serve their customers at the same level as banks,” he said.
Kennedy Karinda who heads partnership and branch banking at Unaitas Sacco said the regulatory space of Saccos is constrained.
As such, he noted, Unaitas is looking into the future with a special purpose vehicle to circumvent some of the challenges to boost affordable housing to members.
He observed a lot of demand, adding that the category of people they deal with are those who have land and want money for development.
Most times, this population construct in phases with every phase requiring refinancing from the Sacco.
“That is really helping because the majority of them could not afford the whole amount being required by the bank,” he noted, adding that that first house is not your home but just a functional house.
“What we are telling Kenyans is what you are building is your first house and not necessarily your dream house, so that they can fit within the space and finances that they have,” said Karinda.
This friendliness and flexibility of Saccos to fulfil customers’ demands seem to come in handy when one is looking for a way to build a home. It is dear to those who cannot afford or view mortgage charges as exorbitant.
Stima Sacco boss said over-reliance on formal structures when it comes to credit scoring makes many Kenyans shy away from banks.
“It is disadvantageous to the informal sector. What we have attempted to do is not discriminate against the membership. Instead of having a rigid way of scoring, you also look at character lending. It is about knowing your customer,” he said.
However, the best way to know them is to get one’s boots dirty and hands muddy – an activity that banks would rather not engage in.
Hassan says a financier needs to understand the business their customer is doing, their lifestyle and character and use these to lend to them.
“I know we borrow very heavily from the western world. If you visited the United States, you will find out that you could probably borrow from one per cent to 21 per cent even on a mortgage facility,” he noted. “But the question you need to ask is who the person is borrowing from one per cent and who is that of 21?”
In most cases, you will find that individuals borrowing at a higher rate are those who do not necessarily have that formal framework on how the scoring system has been put.
“As we copy, I do not think we should copy and paste, we should use other avenues whereby we can have a more social framework, more empathetic in terms of our lending. Let us not have people in a straitjacket,” he said.