Exciting times ahead. That is the message from two reports — The Hass Index Report and The Mortgage Report — launched last week in Nairobi.
The quarterly reports have for the last two or so years painted a gloomy picture for the housing and mortgage sub-sectors in the country, mainly due to runaway interest rates and high housing prices.
But for the second quarter of 2014, both painted a positive outlook for the real estate sector. Their assessment is based on recent government-led initiatives aimed at curbing bank rates and reduce interest rate margins, which they claim are already having impact “although the uptake remains far from comprehensive”.
The Mortgage Report, published quarterly by The Mortgage Company (TMC) cites at least four moves expected to excite the market in the near future.
First is the recent introduction of the Kenya Banks’ Reference Rate (KBRR) at 9.13 per cent in July, which the report notes is the first step towards developing a more vibrant mortgage market in Kenya.
Both reports have described KBRR as the equivalent of the LIBOR (London Interbank Offer Rate) against which all international currencies are priced.
With this new standardisation of the offer rate, says TMC, the Central Bank base lending rate will now be a serious reference rate for all financiers.
This is likely to work in borrowers’ favour since mortgage rates will be fixed for six months until the Central Bank of Kenya reviews the KBRR. This means banks will not change interest within the six months, even if inflation goes up, as happened in 2011 and 2012. The second step cited by the two reports is the introduction in July of the APR (Annual Percentage Rate) or total cost of credit for all lenders by the Kenya Bankers Association.
This instrument will see lenders declare all costs associated with borrowing, including interest rates, bank charges and fees such as legal, insurance, valuation and government levies.
Transparency
This will promote more transparency in pricing of all loans and full disclosure of the other costs associated with the loans and go a long way in enabling borrowers to have a full view of the commitments they are making in taking the loan without any hidden costs.
Another development cited by TMC is the positive reporting on the Credit Reference Bureau, which it says has opened up visibility for lenders of the true position of borrowers in terms of credit.
And then there is the highly publicised reform agenda at the Ministry of Land, Housing and Urban Development, which is expected to create an enabling environment for the mortgage sector.
As has been pointed out by other players, TMC says that with digitisation of land records, the titling process will become much more efficient and reliable, therefore opening up the industry for the secondary mortgage market. But these moves, says The Mortgage Report, are just the beginning of a long journey to make mortgage accessible to more Kenyans.
Standardisation
“With these three great initiatives in place, we need to do two things: the first is the standardisation of documentation and the other is the need to critically analyse the unique composition of the market’s dynamics to enable us open up the industry to universal acceptance,” says the report.
In more developed markets, it explains, mortgage documentation is standardised so that mortgages are similar despite the originating bank. This means that the application forms and the security documentation are all standardised, and the legal documentation and valuation parameters make mortgages comparable, despite the different service providers.
On its part, The Hass Index Report says that these moves towards more moderate and visible finance pricing are set to stimulate a significantly greater level of mortgage uptake.
These are great strides for the housing industry. However, as two mortgage players told me about three weeks ago, Kenyans will have to wait a little longer to see the fruits of these initiatives.
