Absa boss explains shift to financing affordable housing

Acorn CEO Edward Kirathe, Lands CS Zacharia Mwangi Njeru and Absa Kenya Acting Chief Executive Yusuf Omari during. [Wilberforce Okwiri, Standard]

On February 8, this year, Absa Bank Kenya and rental housing developer Acorn Holdings Ltd (AHL) launched a Sh6.7 billion financing partnership that will see the latter add 12,000 beds to its capacity as part of its affordable housing plan for university and college students.

Acorn, one of the pioneers of the Real Estate Investment Trusts (Reits) in the country, will develop the students' accommodation housing units over the next three years.

The move will be a major boost to the government's affordable housing goals by addressing the current student housing deficit estimated at 300,000 beds annually across the country. Absa Kenya Acting Chief Executive Yusuf Omari spoke to Financial Standard on the deal and the lender's role in the larger green affordable housing agenda in the country.

What is the expected impact of this project?

In this project, we have come together with Acorn, which has a proven track record in developing student accommodation. In the past, they have had an oversubscribed green bond and have thus been a force in the industry.

With the shortage of over 200,000 units in student accommodation, there is a need to partner with them to try to fill this gap. We are providing funding of about Sh6.7 billion for them to develop additional units and cut this demand. The money will generate 12,000 houses and through this and other such initiatives, over time the gap will be sealed.

This would appear like a negligible number considering the deficit, don't you think?

When you allow the free flow of the fundamentals of demand and supply, you will reach an equilibrium where demand and supply are matched.

Funding ensures you can move resources from certain areas where you have sufficient investment and address an area where there is an urgency and where returns are attractive. You will see more and more investments done in this area.

Why the shift to green affordable housing?

Sustainable financing is one of the core fundamental pillars of the bank. We have gone out to the market and stated very clearly our specific goals when it comes to sustainable financing. This project has ticked all our boxes: not only from a returns perspective but also underlining our fundamentals of environmentally friendly areas. Environmental, social, and governance is always part of the project.

Is this the first project you have in the affordable housing space?

Not quite. We have done these kinds of deals, but not to this magnitude (of Acorn). There are so many student accommodation projects being carried out that we are part of. It is something we have done with other customers.

How has real estate recovery been post-pandemic, and what are the prospects for your relevant portfolio?

From a macroeconomic and environmental view, the challenges happening globally such as the geopolitical risks we have seen in Russia, the increase in the price of oil and the global challenges with the recession and all regulators' reaction to that by increasing reference rates, we continue to see a lot of activity in the real estate markets. The rates will pick up, and we have to respond and price appropriately. The macroeconomic conditions will continue changing, and we will finally experience stability.

Doesn't the focus on affordable housing leave other key areas in your portfolio underfunded?

One thing you cannot do as an organisation is to have concentration risk. If something happens in that area then you will be underwater. There is a big need in this area (affordable housing) and thus a justification for funding it. Equally, if you look at all the other core pillars, they are areas that need investment. As a bank, we ensure we are not putting all our eggs in one basket.

How is your mortgage financing business doing?

We are supporting the government. We are shareholders of Kenya Mortgage Refinance Company (KMRC). KMRC was set up to mobilise funds and onward lend to financial institutions including Saccos so that they could then fund at the retail level.

We have played a role in setting up KMRC, including taking a stake there and have received funding from them to on-lend at an affordable rate, which we are doing.

On the supply side, we are funding developers. We have several projects.

We have gone to the National Housing Corporation (NHC) and are in partnership with them, all the way to the retail level where you come in and tell us about the housing unit you want and then apply for a mortgage loan. We are cutting across at all levels. The interest rate is on the risk-based pricing model.