Time to translate good intentions into reality

NAIROBI: The year 2015 has started on a sad note for the real estate sector, but that does not mean it will end that way. The collapse of a residential building in Nairobi’s Huruma estate, barely three weeks after another building collapsed in the city’s Kaloleni estate, has put an early blemish on the New Year.

But there is every reason for property investors in general and potential home buyers in particular to be optimistic in 2015.

It is expected that the housing shortage will abate this year now that the hard times of 2011 and 2012, which forced many developers to put on hold a number of housing projects, are behind us. This could see house prices stagnate or come down.

It is also expected that this is the year mega real estate developments will start trading on the Nairobi Securities Exchange under Real Estate Investment Trusts (Reits).

No project has so far been licensed to trade on the bourse since Reits regulations came into force over a year ago, but a number of entities have been preparing to take advantage of this investment opportunity. But more reassuring for the potential home buyer are two developments that took place in the second quarter of last year.

If implemented, the two, which are government-led initiatives aimed at curbing bank rates and reducing interest rate margins, will bring cheer to buyers.

 REFERENCE RATE

First was the introduction of the Kenya Banks’ Reference Rate (KBRR) at 9.13 per cent in July last year, which is considered the first step towards developing a more vibrant mortgage market in Kenya.

KBRR is the equivalent of the Libor (London Interbank Offer Rate) against which all international currencies are priced.

With this new standardisation, the Central Bank base lending rate will now be a serious reference 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 initiative was 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. This will promote more transparency in pricing and full disclosure, which will 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.

In its second quarter report for 2014, The Mortgage Company described the initiatives as a move in the right direction for the home loan sector saying that they are “just the beginning of a long journey to make mortgages accessible to more Kenyans”.

“The recent introduction of the Kenya Banks’ Reference Rate at 9.13 per cent is the first step towards developing a more vibrant mortgage market in Kenya,” said the report.

All we need now in the New Year is to make these initiatives a reality.

— fayieko@standardmedia.co.ke