Get out of rent trap one step at a time

Kenya: Many, who would otherwise not own their own homes because of high mortgage rates and exorbitant housing prices,

are finding an easier route to home ownership. JAMES WANZALA brings you the story of one man who made it with little earnings

Michael Stanley, 34, started dreaming of owning his own house in his early 20s. He was tired of paying rent every month and getting nothing in return.

“That was in 2004 and I was not even married. I was then living in a double-room in Dandora, paying Sh4,000 in rent per month,” said Stanley, a General Manager with Jebmic Agencies Ltd and a father of three.

It was after realising that the Sh4,000-rent he paid every month would not “return” that he started dreaming of owning a house.

Today, he is a proud owner of a four-bedroom bungalow in Saika Estate in Eastlands, Nairobi County.

But how did he do it? Until 2006, Stanley was working as a computer trainer in Kayole, earning Sh7,000 per month. Later that year, he left employment and started his own firm.

“While employed as a computer trainer, I would save Sh300 per week in our youth group which had 18 members,” he told Home and Away.

By 2007, he had saved Sh20,000 and successfully applied for a Sh80,000 loan. He then borrowed another Sh20,000 from a relative and bought a 25 by 50 feet plot in Saika.

Before, he had gone to a local bank where he was denied loan because he could not afford the requirements that they needed, as he says.

Stanley religiously saved to build the house. Every time he made a profit from his business, he would take Sh500 to the hardware to accrue until it was enough to purchase ten bags of cement.

He saved for five months from the business until he could buy a lorry of building stones for Sh7,000; six tonnes of ballast at Sh6,000; and six tons of sand at Sh8,000.

After acquiring necessary approvals, he broke the ground. He sketched the building himself and then took the sketch to an architect, saving him some cash. He also did the bill of quantities.

“To save on cost on construction, I decided to be on the site myself all through and I could buy most of the needed materials and supervise the construction work to ensure nobody cut corners,” he recalls.

Within one year, he was done with building his four-bedroom dream bungalow. He remembers moving into the house even before it was finished. He was only 28 then. He did the finishing while living in it.

“It took me only one year to start living in my own house – and without a mortgage on it,” said a beaming Stanley, who has modified the third room and rented it at Sh5,000 per month.

In Saika where he lives, the monthly rent for a four-bedroom house is between Sh25,000 and Sh30,000. Living in his own house therefore saves him that much, with the fourth room earning him Sh5,000 in rent.

Stanley argues the “long” duration one takes to build his or her own house is what discourages many people from owning their own houses through investment groups like the one he was in.

Stanley has since helped his immediate brother, who is soon starting to build his own house, through the same process. He also helped six other members of the youth group, which collapsed “after members became financially stable”.

Stanley has now decided to venture into real estate management business, where he uses his experience as a homeowner to advise others.

He says the good thing about investment groups is that one can easily access small loans, which do not need collateral, unlike financial institutions, to help one finish a housing project. He took four small loans.

“And in case you default, your new house cannot be repossessed to recover the loan only maybe the furniture,” he said.

In total, the house cost him Sh1.6 million, which he said was not much of a stress. He is planning in future to buy Sh50 million rental apartments in Nairobi through the same method.

Stanley says mortgage is only affordable to those who have huge cash at their disposal yet many Kenyans are low-income earners.

High interest rates

According to the Mortgage Report for the last quarter of 2013, high interest rates have made mortgages unaffordable to the majority of Kenyans.

The report cautions that without urgent financial interventions, housing shortages are set to grow far worse, and homeownership will remain a ‘pipe dream’ for most Kenyans.

According to the report, only a fifth or 20 per cent of urban households live in their own homes, as opposed to 70 per cent in the rural areas who own homes.

“Rates are running at far higher levels than the norm,” said Caroline Kariuki, the Managing Director of The Mortgage Company.

Banks are currently charging interest rates ranging from 16 per cent to 18 per cent, against the Central Bank Rate of 9.5 per cent.

Industry players argue that investment groups are a welcome alternative to counteract the high cost of mortgages. According to Daniel Ojijo of Mentor Holdings, the challenge, however, would be the administration of the chama’s capital.

“I advise potential homeowners not to be in a hurry; instead of owning a house through mortgage, which will take you a long time to paying off and with the possibility of defaulting, you can opt for a chama and move slowly towards owning a stress-free house,’’ Ojijo advises.

According Timothy Kamau, Head of Investor Relations at Home Afrika, the main advantage of owning a home through an investment group is that members have the opportunity to pool money to purchase land and construct as a group.

“This gives them an opportunity to build houses much cheaply than if they decided to do it alone,” says Kamau.

Another advantage is that those who choose to build and own a house through chamas are not exposed to high interest rates that mortgages currently attract.

Martin Mwanzia, who lives in his own house and a business partner with Stanley, says mortgages do not guarantee return on investment for rental investors.

“I had a friend who took mortgage of Sh5.5 millions and was paying Sh56,000 per month. Today, he has rented the same house to someone who is paying him Sh45,000. He has to top up his monthly mortgage repayment by Sh11,000,” says Mwanzia.

Stanley says owning a house, especially through chamas, requires long-term planning. Many people, he says, are not willing to plan to own a house within, say, ten years. With proper planning, he notes, one can build a house within five or ten years. “You should start early and build yourself a house when you are still young,” he says.

This, according to people who have successfully built their own homes like Stanley, can be achieved in phases. The first phase can be buying a plot, which can take six months or a year, depending on one’s income and the envisaged house.

The second stage can be seeking necessary construction approvals, followed by actual construction work. The last stage is finishing.

No doubt that with the high mortgage rates and exorbitant property prices, investment groups are a cheaper alternative many people can use to achieve their homeownership dreams.