Banks, pension schemes top finance sector sources for real estate funding

Bank loans and retirees’ savings remained the largest finance sector source of funds for property developers and homebuyers in 2017, fresh statistics show, amid declining average house sales and rent prices.

Commercial banks increased their investment in real estate by Sh87.56 billion last year, the highest allocation in a single year despite the September 2016 legal ceiling on loan charges.

That brought banks’ total loans in the sector - whose growth slumped to a six-year low in 2017 - to Sh371.65 billion, data from central bank’s stability report shows.

However, despite a 30.82 per cent growth in financing from lenders last year, CBK notes that backing for real estate has continued to grow outside the banking sector.

“While Saccos have focused on funding land purchases and construction of residential houses for their members in urban areas, through investment units, local pensions institutional funds like National Social Security Fund (NSSF), insurance companies and pension funds, have also invested substantial amounts in real estate, without resorting to bank loans,” the financial sector regulators say.


Pension schemes were the second biggest financiers after banks, injecting Sh48.30 billion fresh funds in the sector to close 2017 with a portfolio of Sh226.72 billion. Funding by insurers rose by Sh2.8 billion to Sh76.04 billion largely on account of the 33-storey Old Mutual Towers office block, while private equity firms cut their cash holding by Sh12.79 billion to Sh83.15 billion.

A confluence of dwindling returns, jitters as a result of prolonged bruising presidential poll and a credit crunch for individual borrowers hurt growth in real estate (land and building property) sector in 2017.

The construction sector, where property market accounts for a large share, grew by 8.6 per cent, recent data from the Kenya National Bureau of Statistics showed, the slowest pace in six years.

The slowdown in the property sector was mirrored in other related industries such as cement whose consumption fell by 8.3 per cent to 5.79 million tonnes, official data indicates.

Housing has been one of Kenya’s fastest growing sectors in the last decade, with returns from real estate outpacing equities and government securities.

The property market, however, suffered a nosedive in sales and rental prices in 2017, sustaining a trend which started in mid-2006, according to separate quarterly surveys by consultancy HassConsult and the Kenya Bankers Association.

Finance sector regulators say house selling prices reduced by about 4.1 per cent in the fourth quarter of 2017 due to large stock of unsold units.