Management wonks call it ‘disruptive innovation’. Here’s how it works.
Someone comes into the market, looks at what is on offer and designs new packages out of existing products and services in a way that is more affordable and adds more value, leaving consumers head-over-heels in love and gasping for more.
It works like magic in Kenya. Ten years ago, you could not open an account if you did not earn a certain amount of money. You also had to be referred by a reputable customer, in a members’ club sort of arrangement until someone turned the tables by demanding no minimum balance and other stringent criteria.
Before you could say ‘banking the unbanked’, Equity Bank was bursting at the seams with account holders, and new business.
In the mobile telephony sector, Safaricom was a Johnny-come-lately. But they had the sense to start selling airtime in small denominations, and that tilted the scales in their favour, all the way to the stock exchange. What am I driving at?
Two weekends ago, I attended the 17th Kenya Homes Expo at KICC.
After hours of marvelling at our great leap forward in architecture and building technology, I came away feeling that the real estate sector needs urgent ‘disruption from below’.
You see, after years of success, many big firms lose focus on the customer, until someone, probably a smaller player, shakes them out of slumberland. Of course there are attempts to fix the prices of building materials. I was pleasantly surprised that most cement companies nowadays produce tiles that can give you a gorgeous driveway at rock-bottom prices. There is also the impressive initiative by the Ministry of Lands and Housing to help us build more houses, in line with Sessional Paper Number 3 of 2004.
The ministry has stationed a brick-making machine at every county and all you need is prove that you can get red soil and a few bags of cement.
Then they will have the machine dropped at your site within no time and at no cost. I spent almost half an hour idling around the machine; imagining it was standing at one corner of my small farm in Runyenjes, spewing out bricks like the world was coming to an end!
Seriously speaking, owning a decent house with basic comfort features remains a preserve of the rich, despite industry protestations to the contrary.
A decent two-bedroom flat, on average, goes for Sh6 million. Simple math would show that if you were to take a five-year loan to buy the house, at an interest rate of 15 per cent, you would need to repay Sh150,000 per month for five years. Now, that means you would need to have a gross pay of not less than half a million, given that you must take home at least a third of your pay.
Of course there is the option of a mortgage, but my own pedestrian view is that most of those who can afford a house at the going rates in Kenya probably have more than one home already.
Real estate growth, therefore, is to be found among those who cannot afford houses at the current rates.
So, how about giving incentives to real estate players to build houses for sale at slightly above the average middle-class rent rates?
Is it possible to encourage people to build houses using modern, cheap technology probably 50 kilometres outside town – assuming the roads are good – in places where land is not as expensive as it is in Nairobi? I am not an expert, and I know not all of us can even dream of buying a house, but I think the real estate sector should now focus on people who pay huge amounts in rent, but who would love to own a house. Any new ideas, Madam Charity Ngilu and team?
