How State financing has helped firms hack off-plan mortgages

Absa Bank Kenya's Peter Mutua signs a partnership agreement document with Unity Homes' Executive Director Jason Horsey that will allow potential home buyers to acquire houses in Tatu City through the affordable housing financing scheme. [Wilberforce Okwiri, Standard] Securing a 100 per cent performance guarantee with a tier-one bank is one of the clauses that Unity Homes has used to prove that off-plan mortgages can work. Unity Homes, with anticipation that such a model can be replicated by other developers, gives homeowners the confidence that if their houses will not be delivered to them, their contributions will be refunded. "I don't know anyone else doing this but because of our track record, and our confidence in our construction methodology, we have decided to do this to support the customer and the bank throughout the process," said Unity Homes Finance Director Mina Stiernblad. Ms Stiernblad, who was speaking during the 2023 Kenya Affordable Housing Conference organised by the Kenya Mortgage Refinance Company (KMRC), said the reason behind this model lies in the firm's track record. "Over the last nine years, we have delivered our houses on time," she said. She noted that for a long time, Unity Homes has been trying to finance demand and not supply hence this new model. Ms Stiernblad said the model has been informed by demand according to the traffic the firm receives. She pointed out that this year, the firm is closing with 4,500 site visits. She estimates about 2,500 of the people could not afford a home with cash. "Now that we can offer off-plan mortgage, we anticipate 60 per cent more people will be able to become first-time homeowners," she noted. The off-plan mortgage programme is being offered in partnership with KMRC and Absa Bank Kenya. She said because of this backing, this product is seven times more affordable than the previous ones. As a result, a one-bedroom house under this off-plan programme is Sh7.7 million and will require one to pay Sh45,000 monthly to service the mortgage for 25 years. The off-plan requires one to deposit 10 per cent value of the house. Otherwise, one would be required to pay Sh322,000 monthly over 24 months. "This is what we feel is moving the needle in the affordable space for us," she said. Ms Stiernblad acknowledges that Sh45,000 as monthly payments may also be viewed as being on the higher side for affordable housing. "It is a sort of high-quality one-bedroom house that you can actually mortgage. We are managing this property ourselves and Unity Homes is accepting to still be there 50 years from now. We hope in 20 years, you can really get a really nice profit from selling this house," she said. She said Unity Homes will be trying to build smaller and cheaper housing. The issue of off-plan mortgages had been raised by the Head of Strategy and Business Development at GulfCap Africa Real Estate Martin Kariuki during the conference. He had sought a response from KMRC Chief Executive Johnston Oltetia on how off plans can be used to make housing more affordable. "We have realised that the majority of mortgages are given for completed units and a majority of affordable projects are being done and sold off plan. How can these gaps be bridged by taking care of risks so that financial institutions can offer off-plan mortgages?" he posed. Hellen Kamwamba, Investment Manager Brownstone Capital LLP, the firm behind Amaziah DMW, a 348-unit off-plan development with a commercial centre in Muthiga, along Waiyaki Way, shared some of the challenges such a model faces. "In such a project, the buyer and you as the developer are partners. If people (buyers) see you are a bit slow, they may withhold payment. There is a very delicate balance to have people pay on time and make sure the development is making the required milestones," she said. "We also have many people who want to invest but it is difficult to get funding for those who want loans. For ordinary assets, you can get a mortgage, but for off-plan, banks are very shy to issue funding unless it is an unsecured facility. We then have to wait until the project is done and, buyers can get sectional titles to charge as security." Ms Stiernblad said Unity Homes' off-plan mortgage, considering the performance guarantee, de-risks buyers from the chaos associated with the construction process. It is one of the aspects of the product that has made it attractive to buyers. "The main thing that people have suffered from is the construction risk and having a mortgage off plan, the construction risk is even larger," Stiernblad noted. She observed that the other challenge with off-plan mortgages is the fees associated with processing the loan. "We are not where we want to be in terms of fees, but we reckon with the economies of scale of this product. We can go back to lawyers and valuers and hopefully get stamp duties waivered on this product," she said. Ms Stiernblad said fees are quite a hurdle in making the product affordable. "Some banks are doing 105 per cent which is great. However, on this off-plan mortgage, we do not have that offering," she said. "For us, and I hope also KMRC, if we get this product right, not only can other developers learn from us but do the same in terms of the future."

How State financing has helped firms hack off-plan mortgages

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