Markets & Finance

Halve rates to grow mortgage uptake, lenders told


Financial institutions currently offer mortgages at rates between 12.0 to 21.4 per cent. PHOTO | FILE

Kenyan banks will need to slash their interests rates by more than half to allow nine out of ten Kenyans to afford mortgages.

According to a report by real estate and investment firm Cytonn, apartments can only be affordable to the mass market at 8 per cent with detached houses at 3 per cent.

These figures are way below all available packages in the market with financial institutions currently offering mortgages at rates between 12 and 21.4 per cent.

High deposit demands by banks also lock out low income earners who are unable to service their dream homes.

“As the interest rate environment is not expected to change in the near future, we expect more people renting as opposed to buying and the Nairobi Metro market remaining a renters market,” Johnson Denge, Real Estate Services manager at Cytonn said.

Kenya’s mortgage market has not grown at par with the boom in the construction sector due to low income levels that cannot service a mortgage, high property prices and high interest rates, all of which discourage potential homeowners from borrowing.

Currently, the country has only 22,000 mortgages worth Sh164 billion for a country of 44 million people - equating to 2.7 per cent of GDP, compared to South Africa where mortgage values to GDP stand at about 24.2 per cent.

However, access to mortgage facilities has grown from 2.5 per cent of GDP in 2007 to 3.5 per cent last year supported by a growing middle class, increased disposable income and infrastructure development.

The real estate sector’s contribution to the GDP has grown from 8 per cent in 2010 to 14.5 per cent in the last quarter of 2015 while the sector’s total return remains attractive at about 25 per cent year on year over the last 5 years.

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