The World Bank has approved a $250 million loan to go towards Kenya’s affordable housing plan, whose implementation has faltered after a court issued an injunction against the imposition of a 1.5 per cent housing development levy on workers’ salaries.
The government has focused on the construction of affordable houses as part of President Uhuru Kenyatta’s Big Four Agenda, with plans to construct at least 500,000 low-cost housing by 2022.
But this comes at a time when the mortgage market is going through a difficult period, owing to increasing cases of loan default, slow uptake of new units, and lenders’ avoidance of a market segment that has become one of the biggest contributors to the increase in bad loans.
As a result, the government set up the Kenya Mortgage Refinancing Company (KMRC) to act as a financial intermediary between the capital markets and financial institutions, particularly commercial banks that offer mortgage loans, by providing them with long-term cash.
Kenya faces an estimated Ksh140 billion ($1.4 billion) housing infrastructure deficit, according to the Kenya Property Developers Association.
The loan from the World Bank is expected to facilitate the operations of KMRC by on-lending to Kenyans who are unable to access long-term housing finance.
“Urban housing currently remains unaffordable for most Kenyans due to the high cost of financing, short loan tenures and high cost of properties,” said Felipe Jaramillo, World Bank Kenya country director.
Currently, commercial banks in Kenya hold only about 26,000 mortgage loans of an individual value of Ksh11 million ($110,000), according to the World Bank.
The interest rate capping in 2016, coupled with an overall non-performing loan ratio of 12 per cent, led banks to tighten their credit standards and offer variable rate loans locking out middle to low income would-be homeowners.
Kenyans largely obtain loans from savings and credit co-operatives (Saccos), which are estimated to provide almost 90 per cent of Kenya’s total housing finance.
While Saccos’ interest rates remain low at 12 per cent they remain highly constrained by the short-term nature of their deposit liabilities and short loan tenures of not more than five years.
The Kenya Affordable Housing Finance project (KAHFP) target households that are considered by the government as falling within the mortgage gap and low-cost categories and represent 95 per cent of the formally employed population. KAHFP is expected to increase access to finance by tripling the proportion of urban households with access to a mortgage.
Regionally, Tanzania has a mortgage refinance company, created in 2010, that has refinanced 13 banks, constituting 14 per cent of the mortgage debt, while in West Africa, the Nigerian Mortgage Refinancing Company was formed in 2013.
Kenya faces an annual housing deficit of 150,000 units across the country, fuelled by increased urbanisation and the lack of affordable housing units on the market, according to the Kenya Property Developers Association.
Kenya requires about 200,000 new housing units annually to meet demand, yet only 50,000 homes are built.
According to KPDA, the affordable housing sector experiences several challenges that include high financing costs, unaffordable and inaccessible mortgages and high incidental costs such as stamp duty, legal fees and valuation fees.