Price controls could drive away investors in housing sector

By Morris Aron

Introduction of price controls in the housing sector will not address shortage.

Chairman of Mentor Group reckons that a liberalised market like Kenya’s would do better with more incentives to encourage players to come up with affordable houses.

"Any form of price control is an act of futility as it will drive away private developers who supply more than 90 per cent of the houses. Profit is a driving motive due to the level of capital involved," says Daniel Ojijo.

He said policy makers need to look for ways to encourage private developers increase housing supply and alleviate the shortfall — particularly the low income segment.

Mr Ojijo says debate on whether developers should be forced to show their customers a bill of quantities would stifle property development when housing shortage is at its peak.

off-shore loans

Among proposals by developers include incentives that would reduce the high cost of land and avail cheap off-shore loans for property financing to increase housing supply.

The Ministry of Housing has gazetted a number of incentives, which have not had any impact on housing prices. They include those that allow any developer who undertakes construction of not less that 20 low-cost housing units for rentals worth Sh1.6 million per unit or below to apply for tax remission for goods and services for the project.

Building code

The Retirement Benefits Act was recently reviewed to allow the use of 60 per cent of pension savings as collateral against mortgage loans.

In addition, the Government is building technology centres in each constituency to promote location-specific building materials.

This follows review of the building code to allow for the use of materials such as grass and interlocking blocks.

Despite this, house prices and supply has remained more or less stagnant, as developers have been slow in taking up the incentives. They say the rapid rise in the cost of construction — particularly land — and the high cost of home financing, housing projects for the low end are not economically viable.

Developers say since the incentives were announced, the cost of land in middle-income areas has appreciated by more than 100 per cent, while that of construction materials has risen.