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High mortgage prices lock out 90pc of buyers

Photo/FILE  The World Bank estimates that the Kenyan mortgage market has the potential to grow to Sh800 billion, which is about nine times the current size.
Photo/FILE The World Bank estimates that the Kenyan mortgage market has the potential to grow to Sh800 billion, which is about nine times the current size.  

The cost of mortgage loans is out of reach for the majority of middle-class Kenyans and compares poorly with peer countries in Africa, a new report by the Centre for Affordable Housing Finance in Africa (CAHF) has showed.

The Africa Housing Finance Yearbook 2012 by CAHF, a non-governmental organisation, says that owning a house is still a pipe dream for a majority of middle class Kenyans.

“Only about 11 per cent of Kenyans earn enough to support a mortgage.

This means that most middle-income earners cannot afford an average mortgage necessary to buy an entry-level house,” says the report.

High construction costs for decent housing and low supply are some of the reasons that make it too expensive to buy a house even for those who ordinarily are expected to afford one.

The report says that a decent house costs at least Sh1 million and Sh2 million and even at this minimum entry level, few Kenyans can afford a mortgage facility.

“Monthly payment is $156 (Sh13,260) and $178 (Sh15,130). Given 30 per cent income to mortgage requires $468 (Sh39,780) and $534 (Sh45,400) per month, earned by less than 10 per cent of the population,” says the report.

The Kenya National Bureau of Statistics classifies middle income as those earning between Sh23,672 and Sh119,999 per month, low income earners get below Sh23,671 per month while upper income earners make more than Sh120,000 per month.

The entry level goes up for buyers looking for an apartment in Nairobi.

“In 2012, the price of a new, one-bed apartment delivered by a developer cost $22,350 (Sh1.9 million). At a 15 per cent lending rate over 15 years, this would require a monthly payment of $313 (Sh26,600),” says the report.

Kenya has about 16,000 mortgage loans which is a drop in the ocean compared to the population and size of the economy.

“The mortgage market in Kenya is largely untapped. We see this as a growth area,” says Faida Investment Bank’s report.

The World Bank estimates that the Kenyan mortgage market has the potential to grow to Sh800 billion, which is about nine times the current size.

The 16,000 mortgages valued at Sh91.2 billion in 2011 account for 2.5 per cent of the GDP, which pales in comparison with other countries such as South Africa which has a 26.4 per cent ratio.

Kenya’s ratio also lags behind Namibia 19.6 per cent, Morocco 16.9 per cent, Mauritius 12.2 per cent, Tunisia 12 per cent (2010), and Seychelles 3.94 per cent.

Kenya’s ratio is however the biggest in the East Africa region followed by Rwanda 2.3 per cent, Burundi 1.6 per cent, Uganda 1.1 per cent and Tanzania 0.21 per cent.

Local players said that this is not a surprise since developers are forced take over the government’s role of building roads, sewer lines and other infrastructure and these additional costs are shouldered by the end buyer.

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