The average cost of home loans under the State-backed affordable housing programme has this year jumped by a third, or nearly Sh1 million, on the back of climbing cost of construction.
Analysis of data shows the average size of mortgage increased 32.65 percent in 12 months through September to Sh3.96 million compared to Sh2.98 million in a similar period in the prior year and Sh2.36 million in 2021.
The Sh0.97 million increment in one year, according to data from the Kenya Mortgage Refinance Company (KMRC), came in a period of elevated inflation amid a depreciating shilling pressured the cost of building materials.
Key construction materials such as steel, paint and cement have been hit by price growth at a time the shilling has been losing value against major international currencies, sliding about 25.7 percent against the US dollar between January and December 22.
The Architectural Association of Kenya wrote in the latest report that the cost of building per square metre ranged from Sh41,600 to Sh100,800 towards the end of the year from between Sh34,650 and to Sh77,500 at the start of the year.
This points to a growth of between 20 and 30 percent, going by the numbers in the lobby’s State of the Built Environment report.
“The construction industry in Kenya has witnessed a notable surge in material costs over the past year, significantly impacting project budgets and timelines. Various economic factors, including currency devaluation and increased import costs, have contributed to this escalation,” AAK wrote in the report.
Cost of construction has been a major impediment to building affordable housing units, and was largely blamed for hurting the State’s flopped plan to erect 500,000 units in five years through 2022 under the previous regime of retired President Uhuru Kenyatta.
His successor William Ruto, has set an ambitious target of up to 250,000 units every year.
“As government, we shall do all that is necessary including providing infrastructure, providing land to private developers so that we are able to meet the planned units at an affordable price,” Housing and Urban Development Principal Secretary Charles Hinga said on December 5.
Kenya has a thin retail mortgage market, estimated at 27,786 home loans worth Sh261.8 billion in December 2022, according to latest data from the Central Bank of Kenya.
The average loan size for commercial banks increased to Sh9.4 million in 2022 from Sh9.2 million the year before, locking out low- to mid-income workers.
The mortgage refinance was formed largely to cater for workers who have been locked out of the homeownership due to high cost loans which come with a short repayment period of about 10 years.
KMRC offers funds to participating banks and saccos at a fixed annual interest of five percent for onward lending to homebuyers — meaning the repayments are not impacted by inflation and resultant increase in interest rates.
President Ruto has made construction of affordable houses a priority in his first term in office, largely funded by a 1.5 percent housing levy which the courts in November ruled unconstitutional.
The levy is gross-on-gross taxation on workers income where the KRA uses the same gross to also calculate the Pay As You Earn, thus a form of double taxation.
The lowest priced unit (a single-room on a 20 square metre space) will cost Sh840,000 which will require prospective homebuyers to deposit Sh84,000 and clear the remainder through monthly payments of Sh3,200 over 30 years.
A two-roomed house of 30sqm will cost Sh1.26 million with prospective owners required to deposit Sh126,000 and thereafter pay Sh4,800 monthly for 30 years, while the price for a 40sqm three-roomed unit is Sh1.68 million paid through Sh168,000 deposit and Sh6,400 monthly payments.
A bedsitter, or studio, on 20 square metres space will cost Sh960,000 with occupiers charged Sh5,200 monthly payments for 30 years on top of Sh96,000 deposit.
