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Investors turn to low-cost homes as glut hits high end of market

Mentor Management chief executive James
Mentor Management chief executive James Hoddell. PHOTO | SALATON NJAU |  NATION MEDIA GROUP

The lower-income housing segment is the next frontier for wealthy real-estate investors as the high-end market becomes saturated, Dyer & Blair Investment Bank and realtors managers Mentor Management Ltd (MML) say in a new report.

Kenya has an annual shortage of 150,000 housing units, mainly in the lower end of the market where developers have been wary of investing due to the high cost of finance.

Investors have for the past decade concentrated mostly on the high returns middle-upper to high-end income housing segments which have been the driver of the real-estate boom seen in the country.

Dyer and MML however say over the past one-and-a-half years, demand for high-end units — which has been driven in part by expatriates — has slowed as a number of foreign missions, companies and international organisations downsize and expatriate family members stay away due to security concerns.

“The opportunity in investment terms remains low-cost housing, which has been out of reach for many self-funded developers based on prevailing interest rates of 15 per cent. For cash-rich investors, not carrying financing costs, this property offers the potential of returns that exceed many competing investments,” said MML chief executive officer James Hoddell.

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Efforts are also being made by the government to spur investment in this segment, through tax incentives for suppliers and easing of mortgage terms for buyers.

In the budget statement, Treasury cabinet secretary Henry Rotich said that special focus will be put on enabling more Kenyans access affordable housing, with a number of incentives targeting developers and mortgage financiers.

He has gazetted a legal notice to provide a window for the National Social Security Fund (NSSF) to invest in prescribed financing vehicles for development of affordable housing.

The NSSF, like other pension schemes, is currently limited to investing 30 per cent of its assets in real estate, with the segment taking up 27.3 per cent at the beginning of last year according to latest statistics.

“To bridge this gap and also ensure decent low-cost housing, I have introduced an incentive to encourage investors to enter into this sector by reducing the corporate rate of tax from 30 per cent to 20 per cent for developers who construct at least 1,000 units per year,” said Mr Rotich.

“We are working with our development partners to put in place a Mortgage Liquidity Facility which will provide long-term funding to financial institutions, including Saccos, to enable them provide longer tenure mortgages to the public.”

The facility would go a long way to address the concern of lenders who shy away from long-term mortgage financing saying that their sources of finance are short term.

Cost of land

The Dyer and MML report shows that in 2016, the number of lower cost apartments coming into the market is expected to rise threefold to about 5,000 compared to 1,700 units in 2015.

The survey found that in the lower-cost housing segment, there is a higher preference for two- and three-bedroom apartments compared to one-bedroom units, with prices ranging between Sh2 million for studio apartments, Sh3.7 million for one-bedroom units, Sh5.3 million for two-bedroom units, Sh5.7 million for three bedrooms and Sh9 million for four-bedroom units.

The supply is expected to be concentrated in areas such as Komarock, Athi River, Mlolongo, Syokimau and Ngong due to the lower cost of land.

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