High cost of money and low incomes have locked a large fraction of Kenyans living in urban areas out of the home loans market limiting its growth, a newly released real estate sector report says.
The report, which is the product of a survey by The Mortgage Company (TMC), says only a fifth of Kenyans living in urban areas can afford a home loan priced at Sh1 million and above.
At least a quarter of Kenyans live in urban areas, meaning that out of the country’s nine million households only two million can afford a Sh1 million mortgage.
The real estate market survey found that at current interest rates half of Kenya’s urban families cannot service a Sh700,000 mortgage casting a dark cloud over the market’s growth.
TMC, a realtor, said the findings of the survey, which also indicate that the total number of home loans in Kenya now stands at 20,000, making the government’s ambition to increase the number to one million a herculean task.
“It certainly cannot be done under the current financing regime,” said TMC managing director Carole Kariuki.
A Central Bank of Kenya (CBK) committee that was formed at the beginning of the year to investigate the low uptake of mortgages in Kenya despite high demand for housing has yet to release its report.
Pricing has been identified as the biggest obstacle to working families accessing house loans forcing them to live in rented units.
Kenya has a high interest rates regime that has seen spreads stay at between 13.9 per cent and 19 per cent in the past 12 months.
Ms Kariuki said that mainstream lenders’ insistence on such high margins of lending has delayed the take-off in Kenya’s mortgage market, distorted the housing range, discouraged private developers and locked out all but the elite from home ownership.
Given the current price range of most new housing units in Nairobi, just one per cent of urban families can afford a Sh5.7 million mortgage.
Another four per cent can service a Sh3.9 million home loan, meaning only five percent or 160,000 Nairobians can buy a home priced at Sh3.9 million and above.
That number is less than a quarter of the government’s one million mortgages target.
“Even the much-touted Sh1 million houses are hardly affordable to many families at current mortgage rates,” Ms Kariuki said, adding that only 20 per cent of Kenya’s urban dwellers can service a Sh1.1 million home loan.
Banks have borne the brunt of criticism over their failure to bring down the interest rates, which rose steeply at the end of 2011 after the CBK raised the benchmark lending rate to 18 per cent to stop the shilling’s rapid depreciation.
The Mortgage Report by TMC Kenya and Hass Consult for the first quarter of 2014 shows that while three lenders cut interest rates on home loans, the rest have retained the rates at last year’s levels.
Standard Chartered Bank remains the lowest cost lender at an unchanged rate of 13.9 per cent, which it has maintained since the fourth quarter of last year. KCB is second with a rate of 14.5 per cent that is meant to run until June 2014 as part of a promotion.
Barclays Bank is third with a rate of 14.9 per cent while Commercial Bank of Africa has cut its lending rate from 17 per cent to 15 per cent and fixed it for four years.
Housing Finance earned itself the distinction of being the only lender that marginally raised the cost of its home loans in the first quarter of 2014 to 16 per cent.
The other lenders have kept their prices unchanged at between 15 to 18 per cent.
“In the absence of any more constructive approach from the lenders, increased take-up of home loans now depends on government intervention,” Ms Kariuki said.
“That can be done by supporting mortgage-backed securities to stimulate the secondary mortgage market or with the creation of housing funds and mortgage subsidies.”
Most lenders have attributed the cost and tenure of their funds to the high interest rates regime in the home loans market. Banks reckon that market dynamics have forced them to depend on short-term deposits for long-term lending that carries with it higher costs.
They have also pointed to inefficiencies at the lands registry as a key challenge to the realisation of lower interest rates.
Land is the most common form of security in the home loans market and the lenders say manual processes at the registry have only made processing of loans tedious, risky and ultimately costly.
“Any policy intervention must address specific challenges that raise costs, keeping the rates up,” Kenya Bankers Association chief executive Habil Olaka said in February.
Lack of consistency in the costs of money has complicated the pricing of mortgages on a long-term basis, Mr Olaka said.
High pricing of land has also played a part in pushing the cost of homes beyond the reach of the majority of Kenyans. Rapid appreciation of land prices in Kenya has been linked to infrastructure development and security.
High cost of loans has also adversely affected developers of multiple housing units who are increasingly finding it hard to finance the projects.
“Developers too face financing cost issues, slowing down the rate of building,” said Hass Consult research and marketing manager Sakina Hassanali.
ABC Capital manager for corporate finance and advisory Johnson Nderi urged lenders to look at other sources of money such as bonds to fund mortgages.
“Mortgage subsidies may not work because of the limited wealth we have as a country,” said Mr Nderi, adding that increasing savings levels would also support any efforts to grow the home loans market by acting as a source of capital for the lenders.
This, he said, has in the past been made difficult by the relatively high rates of inflation and heavy taxation.