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State backed mortgage firm to lend at below 10pc

Affordable housing
Affordable housing is one of the four pillars of President Uhuru Kenyatta’s agenda for the next four years. FILE PHOTO | NMG 

Kenyans earning Sh150,000 and below per month are set to get house loans from local financial institutions at rates below 10 percent after the country launched its first secondary mortgage financier Thursday.

The Kenya Mortgage Refinance Company (KMRC), a Treasury-backed lender, is expected to cut the cost of home loans to single digit from the current market rate of about 13.5 percent.

President Uhuru Kenyatta Wednesday presided over the launch of KMRC, which is expected to help drive the State’s agenda of providing up to 500,000 cheap housing units by 2022.

Under the Jubilee administration’s mass housing drive, Kenyans who opt to buy their houses in Nairobi will qualify for loans of up to Sh4 million with those residing outside the capital securing up to Sh3 million.

KMRC’s funds will not be directly available to individual borrowers. It will lend money to financial institutions at low cost, enabling them to write home loans at single-digit rates.

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Concessional loans

“Since we are getting concessional loans, our proposal is that primary lenders should pass the benefits to the borrower by keeping interest rates at single digit,” said KMRC interim CEO Johnstone Oltetia.

“But our key focus is on tenure because it is what will eventually drive down the overall cost of mortgage, the fact that more financial institutions will be offering long-tenure loans at fixed rates.”

Borrowers of the loans will be allowed to acquire either apartments or free-standing property.

“Once operational, KMRC will support a large number of credit-worthy potential borrowers who are not able to obtain loans at the moment,” said Mr Kenyatta.

“It will be expected to provide fixed-rate, long term low-interest funding; and help reverse low mortgage penetration in Kenya.”

Kenyan commercial banks currently have only 26,187 mortgage accounts in their books worth Sh223.2 billion, according to Central Bank of Kenya data.

The mortgage penetration rate, at only 2.7 percent of GDP, compares poorly to South Africa’s mortgage industry that makes up 31 percent of GDP.

KMRC’s funding is expected to drive the number of mortgage accounts to an estimated 60,000 by 2022.

Kenyans earning more than Sh150,000 per month will however continue to borrow house loans at market rates, with the role of KMRC being limited to mobilising more cash for mortgage and cushioning the primary lenders from losses linked to loan defaults.

The financier, which has so far mobilised Sh37.2 billion - Sh2.2 billion in equity capital, Sh25 billion committed by the World Bank and Sh10 billion from African Development Bank, has plans to raise an extra Sh5 billion from the capital markets.

“The KMRC has come at the right time when mortgage loans are very expensive, to provide incentive to primary mortgage lenders to offer longer-tenor loans,” said Treasury Secretary Henry Rotich, adding that the country “has the right conditions for it to succeed.”

The non-deposit taking KMRC, which is set to be operational from next month, plans to issue bonds at the capital markets and mobilise more funds from international development institutions.

Commercial banks

It is 20 percent owned by the Treasury with eight commercial banks, 11 deposit-taking Saccos and one micro financial institution holding a combined 80 percent stake. Shelter Afrique, a pan-African finance institution as well as the Word Bank’s private lending arm, International Finance Corporation, are said to be currently undertaking due diligence, keen to join the list of KMRC shareholders later in the year.

Mr Oltetia is a senior financial sector advisor at the Treasury.

Treasury principal secretary Kamau Thugge is one of the board members.

Others in the interim board include Stima Sacco chairman Osman Khatolwa who represents all the deposit-taking Saccos, Housing Finance Company Group CEO Robert Kibaara who is there on behalf of other banks and KCB Group’s nominated member Samuel Makome.

The Jubilee administration’s housing pillar is a key plank of the “Big Four” economic development strategy aimed at generating higher growth.

It is supposed to be backed by National Housing Development Fund (NHDF), an institution that is expected to finance offtake tenant purchase schemes and offtake guarantees to developers.

On May 20, the High Court blocked for the third time the planned collection of 1.5 percent housing levy from workers and employers, thwarting the State’s effort to build the NHDF.

It is estimated the levy will yield at least Sh4.75 billion every month from the country’s workers whose numbers hit 2.65 million last year according to the Economic Survey 2019.

The drive to collect the levy has been opposed by Federation of Kenya Employers, the Central Organisation of Trade Unions and the Consumer Federation of Kenya.

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