What moneyed private equity firms hold for property sector

How more Kenyans can afford a roof over their heads has been a recurrent headache for successive administrations. The current administration seeks to solve this with a 1.5 per cent housing tax and purposes to put up over 200,000 units annually. The private sector is also expected to play a role towards this goal. Real Estate firm Mi Vida Homes is one of the private sector developers backed by strong financial and technical partners including Actis, a global private equity investor, and Shapoorji Pallonji, a 150-year-old construction firm -who helped in delivering the first project in Garden City, Nairobi. Mi Vida Homes chief executive Samuel Kariuki shares insights on the country's housing market and why it is important to institutionalise the real estate business to spearhead affordability. Homeownership is elusive to the majority of Kenyans... I would like to think affordable rental as a need today. To me, a decent rental is a need. Affordable ownership is a want. About 90 percent of us in Nairobi are tenants, and it is going to be so for a while. I see the need today to supply affordable rentals. The figures often quoted for the housing deficit in the country is about two million units. Annualised, we need a supply of 250,000 units. The quoted supply is 50,000 of which 1,000 would qualify as affordable homes. Some 60 per cent of Nairobians live in informal settlements. Nairobi is one gigantic sprawl of unplanned developments. The sprawled developments have no standards, no lighting, and infrastructure so you would argue that they are informal. And the majority of Nairobians live in those areas. A case in point like Pipeline Estate. That cannot be a formal supply of housing. Why then is rent so high in Nairobi? The way to look at it is the supply side constraints for developers. For example, is there affordable serviced land that is available? On average, land in Nairobi is Sh130 million. And you need development finance which is expensive. The cost of construction - hard costs - is from Sh56,000 to Sh70,000 per square metre. A good portion of that is because imported materials are susceptible to global shocks. This renders the final cost of a unit relatively expensive. And this is when you follow all the formal channels. There are those of course who cut corners and are able to rent at affordable prices. What is the value of having such strong partners and what do they bring to the Kenyan housing market? I think what it brings to Kenya is much-needed institutionalisation of real estate. Real estate in Africa mostly, outside of the more developed market, has been a mom-and-pop, kind of thing. It is I get an eighth of a plot, do a few flats, and that has been the primary supply. You could argue that it is unregulated and does not meet certain standards. What has been the effect of the lack of institutionalisation of real estate in the country's housing space? The majority of us, even the middle class, would live in premises that lack decent amenities that should be available. I live somewhere where I like the sun, and everybody should be out in the sun for a few minutes, but for me to get the sun on a weekend, I have to get to the parking and sit on the carbon. That is the only place. And this is in a high-end neighborhood. That tells you the gap in the institutional quality supply of real estate with certain basic minimum amenities. What is the benefit of being an institutional developer, as MI VIDA, in this quest for affordable housing? The beauty of being an institutional developer is you have access to capital. In our case, when we launched this platform, we received a Sh12 billion commitment from both financiers which is to be applied to affordable and mid-market housing. As a result, we are able to leverage scale in the supply chain in such a way that you reduce your total costs of developing to a certain practical level and for that reason, we are able to launch the kind of products we have. How do these products look in relation to the market? Garden City is a high-end master plan. We do have houses there that sometimes are being sold for Sh40 million; today we have houses between Sh17 and Sh27 million on the high-end side. We have mid-market that are complete units being sold for about Sh8 million to Sh16 million for one, two, and three bedrooms. But in that context, we are bringing an affordable phase to it so that it is a proper mixed-income community. We are introducing houses from price points of sh2 million up to sh6 million. How affordable would you say are these products? It is an interesting product, which is a hybrid between a long-term payment plan and Tenant Purchase Scheme (TPS). If I buy today that studio apartment at Sh2.1 million, I pay a 30 per cent deposit, over the construction period and I take the option of TPS for 20 years. I will then be paying a monthly instalment of Sh15,000 post-handovers. If I decide to rent out, I will be getting a monthly rent of between Sh15,000 and Sh18,000 for the same unit. If I get Sh18,000, I use Sh15,000 to pay Mi Vida Homes, pocket the sh3,000 and I will own the unit. That answers the question of what are we doing to institutional investors to increase affordability.

What moneyed private equity firms hold for property sector

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