Mortgage firms scramble for mega projects

Mortgage firms are eyeing bigger projects to grow their loan books. Photo/FILE
Mortgage firms are eyeing bigger projects to grow their loan books. Photo/FILE 

Mortgage companies are scrambling for wholesale borrowers as they seek to grow loan books after a financing spree that has enhanced their lending capacities.

This is in tandem with a shift by developers to take on mega housing projects, especially in the east of Nairobi, meant to satisfy a huge demand fuelled by a strong middle class who are dreaming of building own houses.

Last week, mortgage provider S&L said it was taking developers to China for a technological transfer trip to expose the investors to cheaper building technologies.

Ms Caroline Kariuki, the divisional director at S&L, said the firm is looking beyond financing the final buyer but wants to supply affordable housing in the face of high land prices and growing cost of materials.

“We want our developers to know how their counterparts are able to construct affordable high-density housing of up to 40 floors,” said Ms Kariuki, adding that the partnership sought would enhance the size of construction loans that would translate into bigger projects.


The development comes shortly after Housing Finance announced it would finance bigger housing and infrastructure projects, especially after its quest for additional capital got wide approval. Its Sh5 billion bond attracted Sh7 billion.

The mega projects require bigger pieces of land that are available on the periphery of the major towns.

Developers and home buyers have been reluctant to go to such sites, citing lack of infrastructure including road, water and sewerage, a segment that HF wants to step in to.

Higher returns

“Houses targeted at the mid segment of the market are now generating higher returns than upmarket ones for every shilling put in,” said Mr Frank Ireri, managing director of Housing Finance.

Barclays Bank last week landed a Sh1 billion financing for the development of the Kenya Airways staff housing in Embakasi, leaving other financiers including KCB, Co-op Bank, HF and CFC Stanbic to scramble for buyers.

Mr Ramji Varsani, the managing director of EPCO Builders, the contractor, says that the ability of a single financier to extend credit facilities on a large-scale is necessary to keep the costs low.

“When banks are left to fight out for the consumers as is the case in this financing arrangement, staff will definitely have lower mortgage arrangements, lowering costs of home ownership,” said Mr Varsani.

The shift towards the big borrowers is expected to enhance housing supply as the developers’ capacity to roll out the mega projects is enhanced.

Under the plan, lenders have an opportunity to grow their loan portfolio with minimum exposure to default as when they lend to many small home buyers.

The S&L director said: “It is comparative that we focus on housing delivery since we would be doing nothing to finance if developers are not delivering housing to the prospective home buyers.”

By involving the developers and the building professionals in what it terms a developers’ club, S&L seeks to build contacts with the prospective borrowers through the process of sourcing of building materials to complete projects.

The focus on the bigger borrowers comes after a rights issue by the parent company KCB, which raised Sh12.5 billion, the bulk of which would be directed to financing projects of up to Sh6 billion to one borrower.

According to the monthly economic review for June, the real estate sector had overtaken household consumption and trade to the pole position among consumers of bank loans.

This is a departure from the recent past where the mortgage providers were keen on the final home owners owing to the fact that the demand for housing outstrips supply, while the current levels of cash reserves allow for more lending to both developers and home owners.

New technologies

S&L, which controls about a third of the local mortgage market, says the trend in the housing sector is about mass supply at a lower cost, which can only be guaranteed by using new technologies.

“Affordability is a major driver for housing, and if we are able to cut on the cost of finances, raw materials and land, we can offer a unit for up to 20 per cent less,” said Ms Kariuki.

Though adoption of the new technologies would be subject to regulatory approval, Ms Kariuki says a review of the building code would come at the right time to allow developers pass on the benefits of cheaper materials in the form of more affordable houses.

Additional reporting by Paul Wafula.