Cash-flush banks race for housing projects

The battle for mortgage business is intensifying as cash-flush institutions such as Kenya Commercial Bank and Housing Finance pour cash into more housing development projects.

The courtship of developers has reached fever pitch, with previously laid-back institutions now aggressively going out for customers.

They are not only forming clubs for developers but also wooing them into more and even bigger housing projects.

On Thursday, KCB announced a trip starting May 16 for its club of housing developers to China.

They are expected to get opportunities for contracts for supply of cheap construction materials to reduce costs brought about by expensive local materials.

The developers are also supposed to learn other and possibly better elements of the Chinese architecture.

Apart from private developers, the group also includes quantity surveyors, engineers, estate agents and architects.

“China is renowned for architectural heritage. Many architects from all over the world indeed go to China to learn from the Chinese architectural histories,” said Mr Peter Munyiri, KCB’s deputy managing director, stressing that China is also the largest producer of building materials and supplies in the world.

KCB, for example, is raising a hefty Sh21 billion to be used in the next five years in expansion in lending, with a liquidity figure now at nearly double the statutory minimum.

It has near-idle cash to the tune of Sh35 billion sitting in government securities, a 67 per cent rise from the situation in December, 2009.

It is part of the bank’s drive to increase lending to the construction sector following the merger between the S&L subsidiary into the main commercial bank, KCB.

The bank, just like Housing Finance, has also been signing contracts with individual organisations to obtain mortgages for staff.

Ms Caroline Kariuki, KCB’s director for mortgage division, said assimilation of S&L into the larger KCB Group early this year had given the organisation a great opportunity to tap into the resources of the larger company.

She said: “Our reach now covers over 168 branches countrywide, including centres that provide personalised services to our customers. It has also given us the capability to venture into long-term financing of huge development projects that a client may wish to take up.”

The bank need to take advantage of its huge coverage by advancing more loans and hence the need to incentivise the developers by lowering their costs in housing construction.

Ms Kariuki said: “We have observed that in the global building and construction industry, the different players are looking at ways to reduce costs and give customers value additions to suit their needs.”

She said although demand for residential and commercial buildings continues to grow in Kenya, the customers are demanding cost-effective ways of construction that meets their unique needs, lifestyles and tastes.

She said the government had urged developers to explore construction of cheaper houses for those in the low-income bracket but this has not been achievable.

“This trip therefore should serve as an opener for the sector to explore ways of offering affordable housing for Kenyans,” she said.

Housing Finance, on the other hand, has liquidity of nearly 30 per cent against the statutory minimum of 20 per cent and must look for new business given that it also has considerable leeway to lend.

Its total capital-to-total assets ratio — which determines the lending headroom — is currently at 32 per cent against the legal minimum of 12 per cent.

It means that it can raise its current lending by another Sh16.654 billion to a total of Sh26.642 billion given its capital levels — but it would have to watch other ratios especially that of liquidity if this were to go exclusively to private sector as opposed to lending to the state.

The risk-free loans to the state are considered part of the liquidity of a bank because it can be easily resold or rediscounted at the Central Bank.

But lending to the private sector for housing, for example, normally gives higher returns to a bank because the lending rates are higher.

CFCStanbic Bank has been quite visible in marketing its mortgage division and products, even on social networking sites.

The institution has even lowered the minimum amount it can lend to Sh3 million from the previous figure of Sh5 million.

CFCStanbic is targeting a wider clientele in the metropolitan after realising that the asking prices in areas close to the Central Business District are just too high.

Said the bank’s home loans manager, Mr Peter Ondieki recently: “Property prices in Nairobi are just too high.”

Recently Hass Property Index showed that prices for apartments in Nairobi targeting high-end income earners had tripled in three years due to speculative nature of the market.