Tatu City opens new business doors for mortgage financiers

Mortgage providers, Housing Finance and KCB’s S&L, who control an estimated two-thirds of Kenya’s home loans market, plan to invest in the proposed “Tatu City” project by financing developers who secure land on the proposed construction site.

Housing Finance managing director Frank Ireri said the company sees the Sh240 billion real estate project unveiled last week by Renaissance Capital and a consortium of local investors as an opportunity to grow its loans book.

“We are keen on financing developers in the Tatu City; this is the kind of projects that we have been looking for and are eager to finance,” he said.

The firm raised Sh7 billion last month from a corporate bond issue after its lending scope had almost been wiped out owing to the high demand for home ownership.

Housing industry players estimate that two-thirds of all new houses are financed through mortgage.

Housing finance’s main rival in mortgage financing, the KCB Bank owned S&L, said it is also eyeing the lending opportunity presented by Tatu City.

“S&L is very keen on financing developers to purchase land and fund the actual construction of the property,” said Carol Kariuki, the divisional director of S&L.

“Funding the developers opens up further business by setting the stage for financing the eventual buyers,” she added.

S&L and HF control more than two-thirds of the local mortgage market, but their market share is now under threat as more commercial banks venture into home financing, driven by the search for more lending opportunities and diminishing yields on alternative investments like government securities.

Launched on October 26, Tatu City is billed as a model city that will house 62,000 residents and provide extra amenities such as schools, shopping malls, hospitals and play grounds.

Promoters of the project say the city, which will be constructed near Kenyatta University will have the capacity to host up to 23,000 visitors every day.

The move to focus on financing property developers comes on the back of a booming construction industry that has seen mega housing projects come up in recent years, targeting the emerging middle class of home buyers.

“Short-term lending to developers has been the preserve of commercial banks because it fits into their capital structure and the nature of their main source of funds, which is customer deposits,” said Mr Ireri. “The supply side of the real estate financing is offering huge opportunities for mortgage lenders because it is shorter-term debt as compared to end home buyer.”

Developers, Mr Ireri said, repay their loans within an average of three years, while home buyers settle their mortgages over 12 years.

Increased appetite for home-ownership has attracted at least 10 commercial banks into mortgage financing in recent years.

Hass Consult, a property development firm, in a recent housing survey said home prices have soared 2.6 per cent in the past three months, driven by increased demand.

Annual demand for houses is currently estimated at 150,000 units, while supply stands at about 30,000 units.

National Bank of Kenya, CFC Stanbic, Co-operative, Standard Chartered and Barclays are among the commercial banks that have lined up with repackaged mortgage products hoping to grow their interest incomes from the lucrative home-ownership business.