No more excuses for not owning a home with mortgage

Edermann Property limited is igniting excitement in the real estate sector; as a game changer in a market that has been unyielding from calls for affordable financing for homes.

Enthusiasm about the Chinese developer emanates from the friendly 8.5 per cent mortgage rate it successfully negotiated with the Development Bank of Kenya (DBK) - a government owned entity through 89 per cent shareholding at ICDC (Industrial Commercial Development Corporation) for its clients.

Limited to only one of its developments - Great Wall Apartments in Mavoko, Machakos County, buyers will enjoy an 8.5 per cent interest rate for a maximum period of 25 years.

Those who stand to benefit most from the deal are those in formal employment since the rate is not dependant on the employer or employment status. Rather, it is an open rate for buyers of the said property.

Market rate

Usually companies negotiate reasonable rate for employees with the financial institutions as long as they continue to work for the organisation.

Those opting out are suddenly forced to relinquish their subsidised rates and suddenly go back to the market rate thereby raising the monthly payment. However, with Edermann’s bargain, the rate is fixed for 25 years.

According to DBK, the cheap cost of funds secured by the bank is what enabled it to price the loan at a lower cost compared to what the market offers.

Although it’s hard to pin down mortgage rates offered to clients bearing in mind the rate can shift downwards or upwards - depending on the client’s risk profile among other factors, CfC Stanbic Bank at the moment is among financial institutions with the lowest lending rate at 13.5 per cent down from 16 per cent.

CFC Stanbic affected the rates this month. Other banks are still giving mortgages at 16 per cent though the trend is showing they have been adjusting in accordance to the Central Bank benchmark rate.

The Central Bank rate currently stands at 8.5 per cent.

Standard Chartered Bank is offering a rate of 14.9 per cent while Barclays Bank is luring home owners its way with a fixed rate mortgage product at 15.9 per cent.

“It’s exciting to see developers make partnerships to help customers secure houses. This is a game changer because it is way below what other lending institutions are offering. It’s actually 40 per cent less,” said Reginald Okumu, director of Ark Consulting, an estate agent and real estate consultant.

Great Wall are selling a three-bedroomed apartment at Sh4million for cash buyers. But are low mortgage rates viable?

According to Okumu, low mortgage rates are a question of strategy yet developers don’t seem to have quiet mastered the game and how it can play out to their advantage.

This, he points out, is due to lack of proper understating of the property market by developers and its dynamics.

“The pricing strategy is what is coming to question,” he says referring to Edermann’s case. “It’s all about low margins and high volumes - not premium rates,” adds Okumu.

He reckons that there are a number of ways to help arrive at reasonable financing. 

Among factors which have made low mortgage rates a mirage for many is laziness and unprofessionalism in the sector. Whereas experts like financial advisers, project managers and estate agents can help advice on various efficient and cost-effective approaches, some developers have opted to only work with basic professionals leaving out a whole group of experts.

This, in a way, has contributed to the high cost of properties and, in turn, expensive mortgages.

Expensive

Experts serve to ensure, the property is delivered on time and cost are kept low making the product appear cheap in the market. But given that many projects done in the country are on a small scale, it becomes expensive to involve a whole range of professionals in a project.

In such a case, Okumu advises developers to settle for experts they can’t do without. This includes a financial expert.

Even as this is addressed, there still seems to be opportunities for other financial institutions to follow suit and initiate as many partnerships with developers as possible for the sake of customers.

“We welcome as many developers to partner with us,” said Jacob Mananda, customer relationship officer - projects at Development Bank of Kenya. 

Erdermann is one among the many clients DBK has partnered with to offer great deals to customers wishing to own their homes. Other banks are also doing the same though the rates are unmatched.

But as they ponder on this from their offices, small institutions will be out there making the day. “Those (banks) not willing to follow suit will be left out,” observes Okumu.

Edermann and DBK have clearly demonstrated that entities can lend at low rates and still remain in business.

If more institutions can put the customer’s interests first, Kenya may see its home buying population grow, signalling a new beginning for a country that’s struggling to shelter its ever-growing population.

Currently, the number of those taking home loans has stagnated at about 17,000.