Innovation in finance key to boosting homeownership

Homeownership remains a pipe dream for many Kenyans if official data on mortgages is anything to go by.

The Central Bank of Kenya’s (CBK) Banking Supervision 2020 Report paints a gloomy picture of homeownership levels. Kenya only has 26,971 mortgages in a country that has a working population of roughly 22.3 million.

It gets worse. The CBK’s data shows that the number of mortgages dropped by 1,022 or 3.7 per cent on account of fewer mortgage loans advanced because of the Covid-19 pandemic and the high number of corporate layoffs. 

Majority of Kenyans earn their income from informal sectors, and from the KRA database, only 3 per cent of persons in formal employment earn above Sh100,000. Therefore, most people are unable to purchase homes on a cash or installment basis due to the astronomical cost of homeownership in Kenya.

Despite numerous interventions to encourage ownership including changing retirement benefit rules that allow savers to use a part of their savings to buy property and removing fees such as stamp duty for first-time homeowners, increasing the number of homeowners is proving an insurmountable task.

Now would be a good time for our policymakers at the National Treasury to toy with the idea of alternative forms of finance that can catalyse the journey from renting to homeownership.

One such alternative form of financing that is ideal for the Kenyan market is the shared ownership concept which is popular in markets such as the United Kingdom.

Under this scheme, buyers, mostly first-time, buy a share in an apartment or a house. It is targeted at buyers who cannot afford to pay for the whole mortgage amount but can afford to pay part of it, say 25 per cent.

Shared ownership allows such buyers to buy a 25 per cent stake in the property where they will be paying monthly mortgage payments for their stake in addition to monthly rent.

Over time as a buyer’s income increases, they can top up and increase their equity stake up to 100 per cent or full ownership through a process called ‘staircasing.’

The beauty of this model is that even if a buyer will not entirely own an apartment or a house, they will have an equity stake as opposed to our current situation where a tenant can live in a unit for years but unfortunately never have a stake in the property.

For lenders, this model is also ideal as it will allow banks, Saccos and other institutions to lend to a market that would otherwise be locked out of the property market since potential buyers may not have the capacity to service the full mortgage amount or the required deposit.

Rent-to-own schemes are other alternatives to homeownership through Lease–purchase contracts. Although these schemes have been around for some time, there is a need to scale this up. There is good progress in this regard as seen by Saccos that are partnering with the Kenya Mortgage Refinance Company to offer their members mortgages below the current market rates.  

Ms Engefu is Head of Finance, Mi Vida Homes