A steady growth in the value of property is helping the Kenyan middle class to climb the housing ladder crossing over from the entry point two bed roomed apartments to high end villas in less than 20 years.
Property dealers say the combination of capital gains and availability of refinancing options in the home-loans market is helping young people reap the value of their initial investment and reinvest in bigger houses with only marginal increase in the financial burden.
That would not be possible without the rapid appreciation of property prices in Nairobi and key towns in the past eight years that has encouraged home owners to unlock the present value of what they already own, offset outstanding balances on their mortgages and use the residual amount as deposit for a higher value property.
A report by HassConsult and Stanbic Investments shows that apartments have appreciated at an average rate of 10 per cent every year since 2000, while town houses and stand alone units grew at the rate of between 16 and 26 per cent respectively during the same period.
Low supply of housing across the three classes of residential housing against increased demand at the turn of the millennium led to a sharp value appreciation in property, with the apartments recording the highest value growth in the first two years since they were the cheapest class of the three.
The surging property values offered the first generation apartment owners the incentive to sell, as they sought to realize the capital gains in their property while their improved earnings could now afford them bigger mortgage finance.
The new found financial status among the individuals in the middle class fueled demand for town houses, whose prices prior to 2003 remained relatively flat, giving way to a rally in prices as more people sought the benefits that come with more space that these houses offer.
The amount of mortgage that a borrower qualifiers for is pegged to their current earnings and the lenders’ long term view of lending rates, both factors having only got better for the mortgage takers.
Government statistics indicate that earnings have been going up by four per cent annually on average, but the emerging middle class is mainly composed of professionals serving in both public and private sectors whose earnings have grown faster.
Home owners have rode on the declining borrowing rates, which have come down by more than half over the period to the current industry average of about 13 per cent, to move up the housing ladder leading to the emergence of middle class gated community neighbourhoods.
The increased financial muscle gave the individuals more power of choice about the extras for their homes like a lawn and backyard which apartments would not offer.
In the last five years alone, the value of stand alone units has doubled as more people with young families chose to turn to these units sought to have own-compound homes owing to the ease with which mortgage financing is coming along.
The deepening of the mortgage industry in the period has pushed more financial institutions to lending towards home ownership, in essence competing for the prospective home buyer, a factor that has led to them to relaxing the financing rule to meet different market needs.
Depending on the mortgage product on offer, mortgage providers are currently offering up 115 per cent financing of the value of the property as these turns out to be a sustainable avenue for the cash-flush financers to grow their loans books.
The recent 25-year government debt offered lenders the confidence to increase their maximum lending terms to match it.
For a borrower, this meant smaller repayments over an extended period pushing up the property value limits that a borrower would qualify for.
The extended repayment period coupled with the projected stability in lending rates promises to keep down the mortgage rates, hastening the transition in home ownership from the entry level small apartments to villas for the Kenyan middle class.
Moving from a conservative lending regime, the principal mortgage financiers have recently raised fresh funds and are now all out to lend to the real estate sector, both to estate developers and home buyers, in a move that promises to change the level the amount of mortgage financing.