Developers, banks eye sweet spot in residential market

President William Ruto and former Prime Minister Raila Odinga at Kirembe Grounds in Kisumu break ground for the construction of the LV Marina Housing Project. President Ruto said that the affordable housing project turns low-income earners like Mama Mboga into home-owners.[PCS] Beneath the push to meet the country's housing deficit of two million units, is an industry that is quite conflicted between the existing demand and what is affordable. Notwithstanding the confusion behind what exactly is affordable, the argument by experts is that Kenya, predominantly Nairobi, is a rental market. Additionally, if one was to buy a home, as it is envisioned by President William Ruto's administration, then the price point has to be below Sh10 million. Yet for long, the government has been concerned with the kind of units being released into the market by developers, as most of them fall above this price range. This is the motivation behind the Affordable Housing Programme and the consequent 1.5 per cent levy to facilitate construction. At the background, however, are financial institutions that are now relooking at their models, to see if they can make a majority of Kenyans own homes, considering how unpredictable incomes are for the informal market. Large-sized projects That sweet spot where financial service providers have the right products for a majority of Kenyans and developers target the right market is where the challenge is. Mi Vida Homes Chief Executive Sam Kariuki notes that the high-end market, where developers have long concentrated on is shrinking. "The reality of the market is that high-end is somewhat saturated. It is only so much in terms of large-sized projects you can do, which I define as Sh20 million plus," he says. He notes a significant opportunity in the mid-market of units priced between Sh10 million and Sh20 million. "But I suppose today, when we talk of a two-million deficit, we are talking about sub Sh10 million price point. Even from our own experience in the last two years, that demand is validated," he says. Mr Kariuki says in a good month, Mi Vida Home sells 35 units categorised as affordable housing. Mr Kariuki was part of a panel discussion at the recent International Finance Solutions Affordable Housing Conference held in Nairobi. He agrees that Nairobi is largely - and will for some time remain a rental market. That if one seeks to put up affordable housing, then a mortgage repayment plan of between Sh15,000 and Sh45,000 would suffice, as that is the range of the rental market where most Kenyans can afford. "There is an overlap between what we private sector defines as affordable and what the current Affordable Housing Act would define. The reality is the market is driven by long-term and deep demand for rental," he says. Superior Homes Chief Executive Shiv Arora says affordability in the context of mortgage should be what one can afford in monthly rent. While KMRC has brought this concept closer, he says more still needs to be done. "There are already a lot of steps being taken towards defining what is an affordable product. At the moment, it is anywhere between sub Sh10 million and (a customer) seeing that I can start from a studio, move to a one-bedroom and then two-bedroom," he explains. Mr Arora notes there are different definitions, whether one is referencing affordable or social housing. Through KMRC, steps have been made slowly towards formalising and understanding the entire sector," he says. IHS Managing Director Kioi Wambaa agrees with Mr Kariuki on the claim that 90 per cent of Nairobi residents are renters. His claim is based on the country's growing population and the rural-urban migration, which makes the 250,000 units a year demand not to be met amid the prevailing economic environment. "The majority of the low-income levels is where demand is," he says. "Interestingly, they say that 60 per cent of Nairobians can afford a mortgage of about Sh3.5 million, but we have been seeing that mortgage uptake has been very low." However, he notes that the introduction of the Kenya Mortgage Refinance Company (KMRC) has improved the numbers. Even so, the big challenge remains how to convert an informal market, which is largely rental, into a home buyer through a mortgage. It is a task that Absa Bank has taken. "What we can do is partner with development finance institutions and government agencies to try and see how we can reduce the (mortgage) rates," says Absa Bank Regional Head of Commercial Property Finance Zaharaa Khanbhai. "KMRC has given us Sh4 billion for onward lending." Partner financial institutions such as Absa can lend to home buyers at single-digit interest rates when working with KMRC. Besides this, Ms Khanbhai says the bank is working with companies which can collate and aggregate data on customers' incomes, such as mobile money statements, considering the informality of the country's economy. "In a day, you might get Sh20,000 or Sh30,000 in a month. It is quite volatile," she says. "We are working with companies who are able to access the data and look at the level of transactions and balances, and for them to pitch to us and say 'this particular mortgage buyer is credible because this is the transaction flow or the average balance." However, this is not to say that every informal income earner will be eligible. "There will be a lot of assessment that will be done," she says. "I think steps are being taken in the right direction, and we are working with the right partners."

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