What it takes to own a decent house at minimal cost and time
By Susan Mucheke
| September 23rd 2021
Owning a house promises benefits such as reduced cost and wealth accumulation from the appreciating asset. It builds a stronger financial future, while also stabilising families and giving you control over your environment.
There is growing demand for decent affordable housing that meets the needs of the family, exceeds standards and appeals to the rising tide of an educated, dynamic and youthful population.
The Centre for Affordable Housing Finance in Africa states that the prices of houses are way beyond the earnings of individuals who would typically afford them. Ironically, apartments in Kileleshwa and Kilimani remain unoccupied even when statistics point to a housing deficit of more than two million units.
Our real estate market is largely segmented. Areas such as Muthaiga, Parklands, Spring Valley and Riverside are accessible to the most affluent. Starting from Sh100 million for an acre of land, property in these areas will cost you an arm and leg, maybe a kidney.
Nairobi satellite towns, on the other hand, are more desirable for settlement. The affordable cost of land and accessibility from highways in areas such as Athi River, Kitengela, Ruaka and Juja has made it attractive for investors keen to crack maximum value with land subdivision and high-rise apartments.
This begs the question of how a moderate-income earner can hack home ownership within Nairobi. Here are some ideas.
Option 1: Buy land and build
In a construction project, it is the work that goes before the shovel touches the ground that counts; you will need to invest in knowledge. Get a lay of the land and find out everything you need to know such as the soil type and topography. Involve a structural engineer to assess the exact needs to support the structure. From there, involve an architect to create a desired design.
To give a rough idea, a mid-level construction with modest fitting costs about Sh36,000 to Sh40,000 per square metre. Thus, the building cost for an 80 square-metre two-bedroom house would be Sh2.88 million based on a rate of Sh36,000 per sqm.
Including the cost of an eighth-acre in a satellite town, a total of Sh4 million can adequately complete the development. Adopting new building technology such as EPS slabs can lower the construction cost. With a trustworthy construction project manager, you can easily hack the build option.
Option 2: Buy a ready house
You can either save to buy a house or get a mortgage from a financial institution. Saccos have become a go-to option for potential home owners seeking mortgages and avoiding stern bank measures. Various institutions have partnered with Kenya Mortgage Refinancing Company and people can access loans at as little as seven per cent per year for affordable houses (those not exceeding Sh4 million).
Most mortgage financiers will require a 5-20 per cent deposit on the total cost of the house. You can put your hand into the personal savings jar or get it from your pension savings. The law now allows you to use up to 40 per cent of your pension savings as a deposit for a house for a first-time homeowner.
You can even combine with that of your spouse to access an even higher amount. Placing a large deposit will shorten the mortgage repayment period and lessen interest costs.
Suppose you and your spouse earn Sh100,000 each. Following the 50-30-20 rule - 50 per cent on needs, 30 per cent on wants and 20 per cent going to savings - you can both save Sh40,000 in a pension scheme offering six per cent interest rate per year. Within two years, you will have a total of Sh1,017,278.
Using 40 per cent of it as down payment for a Sh4 million house, the outstanding balance will be Sh3,593,089. Assuming an eight per cent interest rate, the monthly repayments would be Sh50,799 and the house is yours in just eight years!
Home ownership is a key component to financial freedom and with proper planning, it can be achieved.
- The writer is a mortgage officer at Enwealth Financial Services
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