High cost of mortgages fuelling housing deficit

By James Anyanzwa

Nairobi,Kenya:With just 20,000 home loans taken, owning a house remains the preserve of a few

High interest rates and inaccessibility to long-term funds have slowed the uptake of mortgage loans even as the country grapples with huge housing deficits in urban and rural areas, currently estimated at 200,000 and 350,000 units, respectively.

According to analysts at Old Mutual Securities, the housing gap can partially be financed by mortgages, while cheaper solutions are required for lower-income groups, including housing microfinance and rental housing.

The analysts, in a report titled Unlocking Housing Potential, say the potential size of the mortgage market in the country is currently Sh800 billion, which is around 13 times the current level. Mortgage accounts in the country stand at 20,000.

According to the report, housing loans have remained the preserve of a few individuals, with the growth of the mortgage market stifled by unaffordability of the houses, low risk management, little access to funding and land issues.

Main players

The main players in the mortgages market include Housing Finance, Kenya Commercial Bank’s mortgage arm Savings&Loan, Standard Chartered Bank, Barclays Bank and Stanbic Bank.

The mortgage industry, however, grew 48.5 per cent to Sh91.2 billion in 2011, but mortgage lending as a percentage of the gross domestic product stood at 2.6 per cent in 2012.

“There have been some efforts to expand this reach by the industry. New entrants and aggressive marketing has resulted in some newer products,” acknowledges the report.

Some of the efforts taken to revamp the mortgage business, according to the report, include introduction of fixed rate mortgages for between 10 and 20-year terms, and100 per cent financing.

“One lender has also introduced mortgage insurance against the risk of a loss of income while the Retirement Benefits Authority in 2009 allowed pension contributions of up to 60 per cent to be used to secure a mortgage. This has the potential to leverage assets worth Sh290 billion and increase access for lower-earning people who have accumulated substantial pensions,” says the report.

The Capital Market Authority’s plans to roll out real estate investment vehicles at the Nairobi Securities Exchange is also expected to make it possible for the public to invest in real estate developments by pooling their money in fund schemes managed by experts.