CBK proposal to rein in price hikes

Is the era of overpriced properties about to end in Kenya? A recommendation by the Central Bank of Kenya could see that happen.

In a new survey on the state of the country’s mortgage market, the regulator recommends that measures should be put in place to oversee valuation of property to avoid arbitrary pricing of properties.

The survey, which has been conducted annually since 2010, gave highlights of the residential mortgage market as at December 31, 2013.

There have been concerns over the last decade or so that property prices in major towns like Nairobi have been inflated because of high housing demand.

Skyrocketing property prices, coupled with high mortgage rates, have been blamed as the main causes of low mortgage intake in the country.

Interestingly, whereas the new report ranks high interest rates first among obstacles to mortgage market development, it ranks high purchase price of properties sixth.

It says that the high interest rates witnessed in 2012 continued to impact negatively on the mortgage market, with non-performing loans increasing from Sh6.9 billion in December 2012 to Sh8.5 billion in December 2013.

The interest rates charged on mortgages on average was 16.37 per cent and ranged from 8.5 per cent to 22 per cent.

The total value of mortgage portfolio, according to the report, increased from Sh119.6 billion in December 2012 to Sh138.1 billion in December 2013, representing a growth of Sh18.1 billion or 15.5 per cent.

There were 19,879 mortgage loans in the market in December 2013, up from 18,587 in December 2012. This is contrary to reports by The Mortgage Company, which indicated that by end of last year, the country had about 22,000 mortgage accounts. 

The new report indicates that average mortgage loan size increased from Sh6.4 million in 2012 to Sh6.9 million in 2013.

Loan size

In its reports for the last three years, CBK has been attributing the increase of the average loan size partly to the rapid increase in property prices.

In its survey for the first quarter of this year, The Mortgage Company said that only 30 per cent of Kenya’s urban population can afford a house priced up to Sh700,000 at 13.9 per cent.

The banks surveyed identified high interest rates, low levels of income and lack of access to long-term funds as the major impediments to the growth of their mortgage portfolios in that order.

The other obstacles were burden of banking regulations (capital requirements,  and liquidity requirements), high cost of construction materials and land, difficulties with property registration/titling, credit risk (lack of credit histories, documented income), start-up cost, stringent land laws, and low housing supply.

The 2012 survey had identified similar constraints, with lack of access to long-term funds being rated as the first obstacle.

To deal with some of these challenges, lenders want the government to support institutions such as National Housing Corporation to improve housing supply and stabilise prices.

They also want the government to develop property index to guide the public on property prices.

Lenders also think digitising lands records will boost mortgage uptake by reducing time taken in processing transfer of properties.

They want stamp duty, paid to the government on property transfer and pegged at four per cent of total property value, as well as tax levies on construction materials, to be reduced.

The respondents also want the establishment of secondary mortgage markets to provide long-term funding.