NHC plans Sh5bn bond as housing demand increases

The National Housing Corporation plans a Sh5 billion corporate bond whose proceeds will be used to build homes to meet the growing demand.

The bond, which is expected in the market before year-end or early 2010, will be the culmination of a drive to free itself from the shackles of government funding and chart own growth path by exploiting its healthy balance sheet.

The announcement comes immediately after a successful public infrastructure bond offer by power generator KenGen of Sh15 billion.

Initial plans by the public housing agency to issue the bond hit a snag when the government backed off from guaranteeing it.

However, having turned around from a broke parastatal to recording growth, the corporation intends to hit the capital market road on the merit of ability to finance such public borrowing from future revenue stream.

NHC, which is tasked with putting up decent and affordable housing across the country, has set the ball rolling by calling on landowners interested to do business with it to express interest.

“We are looking for appropriate land so that when the bond is issued we can channel the funds to development and not keep the funds idle as we scout for land”, said Mr Darius Kirubai, the corporation’s procurement manager.

NHC targets to put up 10,000 units per year.

Mr Kirubai said the corporation is seeking to link up with land owners who wish to develop property but lack the financial means and also carry out construction.

The corporation will oversee the arrangements and earn commission from the business.

The corporation’s initial plans of providing finances for construction have been successful with applicants getting up to Sh1.5 million, said Mr Kirubai.

The property sector has been growing rapidly since 2005 due to high demand, which has pushed prices high, although some players attribute this to rising costs of inputs.

“The potential for putting up more houses is very huge as less than 10 per cent of Kenyans own homes... demand is very high but players in real estate are being constrained by the rising input cost, especially land, which now accounts for 30 per cent of the overall cost of development”, said Mr Daniel Ojijo of Mentor Group, a property agency.

Developers have blamed the high prices on cost of materials, land, and archaic building code that limits the size of housing projects, cutting them out the economies of scale.

High closing cost has also denied many potential homeowners from accessing finances for construction.

The closing cost item includes a down payment that ranges from 10 to 20 per cent, legal fees, stump duty, valuation fees, life insurance and loan registration fees.

Kenya’s demand for houses is estimated at 200,000 units per year, which is way above the supply of 40,000 units, creating a mismatch and pushing up the prices.

“The existing prices are driven by the forces of supply and demand with other issues such as security, accessibility and amenities seen as critical”, said Linet Oyugi, a policy analyst with Institute of Policy Analysis and Research (IPAR).

While acknowledging the high cost of houses may be locking out many potential homeowners, players, however, are calling for use of local materials to bring down cost of development.

“We need to change the country’s building codes to allow the use of locally available materials such as stabilising blocks to reduce the cost of development, which will bring down the final prices,” said Mr Reginald Okumu of Ark Consultants.

The government has received the recommendation on the review of the building code which awaits Cabinet approval before being taken to Parliament for enactment.

The review will see among other things the use of locally available materials, use of appropriate technology and putting up of highrise residential houses.

“Potential developers should demonstrate competence in introducing innovative construction technology to reduce construction time and costs”, said Mr Kirubai.

The robust real estate sector, which seems to have defied the overall tanking of the economy due to the global crunch, has largely favoured urban areas.

However, to address the emerging housing needs in other parts of the country, NHC intends to cover the whole country.

Skewed growth

Lack of appropriate financial solutions, especially for the rural areas, has contributed to the skewed growth.

By also factoring in the rural areas, the agency will unlock the economic potential associated with construction projects by creating jobs and offering opportunities for traders and transporters.

The plan to engage landowners indicates the corporation’s projection to carry out largescale housing.

It is looking to partner with land owners who have a minimum of five acres of land.

The move by NHC will lead to increased competition as commercial banks are raising their stake through partnership with developers.

The latest entrant is Co-op Bank that intends to work with Saccos which holds a substantial stake of land in the country.

“The country Saccos movement holds extensive land for their members and we intend to ride on the direct business ties we has with them to enable ease of access to houses by the members”, said Chris Chege the Head of Mortgage in previous interview with Business Daily.

Similarly, insurance companies are taking into real estate to cushion themselves from dwindling returns experienced in the equity market.

Pan African Insurance is developing a high end property in the leafy Runda estate.

Other players upping their game include Habitat for Humanity Kenya, a non-governmental housing actor which intends to provide construction finances to individuals across the country who put up houses costing not more than Sh160, 000.