State in talks with banks to cut mortgage rates, spur housing

A house under construction along Thika road. Kenya continues to experience serious housing shortage. [PHOTO: WILBERFORCE OKWIRI/STANDARD]

Nairobi; Kenya: The Government is negotiating with local banks to reduce the interest lenders charge on mortgages to single digits, as authorities try to make purchasing a home affordable in East Africa’s biggest economy.

Deputy President William Ruto said talks with the banks were underway, without giving a specific timeline within which the government wants the single-digit interest rates to be achieved, according to his spokesman, David Mugonyi.

The total housing shortage in Kenya, a nation of 43 million, is estimated at 150,000 to 200,000 homes in urban areas and more than 300,000 in rural areas. The Government and private developers provide about 30,000 homes a year, well short of demand, according to Shelter Afrique, the pan-African housing finance agency.

“Affordable home ownership is still a pipe dream for most Kenyans,” according to HassConsult, a Nairobi-based real-estate consultancy. “The high land prices and high cost of infrastructure coupled with the developers’ need to make profits keep most homes out of reach for most Kenyans.”

Barclays Plc’s Kenyan unit charges the lowest rate for a mortgage, at 15.50 per cent, while Chase Bank Kenya Ltd. asks the most, at 22 per cent, according to HassConsult. Sixteen of the country’s 43 banks offer mortgages.

Kenya Commercial Bank Ltd (KCB), East Africa’s biggest lender, is seeking to increase loans for home-owners in a market where there are only about 30,000 mortgages, Chief Executive Officer Joshua Oigara said in an interview early this year. Kenyan mortgage lending accounts for about 6 per cent of bank loans, compared with about 25 per cent in South Africa, he said.

Declining Rates

Projections indicate that if the momentum on reducing interest rates is maintained, mortgage rates may drop below 10 per cent by the end of the year, Habil Olaka, the Kenya Bankers Association’s CEO, said in an e-mailed response to questions on Oct. 22.

“The progress being witnessed on the lending rates is as a result of the measures that were put in place after consultations between the National Treasury, Central Bank and the Kenya Bankers Association,” he said. “The Kenya Bank’s Reference Rate (KBRR) and Annual Percentage Rate frameworks and the other measures have enabled banks to compete on price.”

The Central Bank of Kenya introduced the KBRR in July, setting a rate of 9.13 per cent that will be reviewed every six months starting January 2015. KCB said October 22 it would offer zero-per cent mortgages until January 31, targeting customers seeking a loan of between Sh300,000 and Sh20 million. —Bloomberg