You can't do without private developers, says World Bank

The World Bank has asked the Government to offer a conducive business environment to private developers for the dream of providing affordable housing to be realised.

A new report by the global lender cites lack of access to land, inadequate infrastructure, cumbersome property registration process and lack of affordable credit to the private sector as the key impediments to home ownership.

The Kenya Economic Update report says that crowding out the private sector in Kenya will stifle the success of President Uhuru Kenyatta’s development blueprint for the next five years, dubbed the Big Four. The provision of affordable housing is a major pillar of Big Four. The Government plans to provide one million units over the next five years, out of which 20 per cent will be social housing and 80 per cent affordable units provided by private developers.

The report, aptly entitled, Policy Options to Advance the Big 4, says the Government ought to provide a conducive environment to the private sector that should in turn handle the bulk of home development.

“The Big 4 is unlikely to be achieved without the participation of a dynamic and healthy private sector. Indeed, whether it is improving agricultural sector productivity, increasing manufactured exports, building affordable housing units or providing quality health services, the private sector can and should play an outsized role.

Conducive environment

“To achieve this, an important role to be played by government is to create a conducive environment to the private sector in the delivery of the Big 4,” says the report.

Key among the measures proposed by the World Bank is for the government to create a conducive monetary regime that will allow both developers and prospective homeowners to access to affordable financing.

It says that Kenya, with a population of 44 million, has less than 25,000 mortgage loans, representing a meagre 0.3 per cent of households. The Kenyan mortgage debt, it adds, is only three per cent of the GDP in comparison to 32 per cent in South Africa.

Since the law on capping interest rates came into effect two years ago, the former flood of financing to the real estate sector has become a trickle as local lenders favour trading in less risky Government papers offering higher, quicker returns.

The World Bank sees this trend as a key obstacle to the provision of affordable housing in Kenya. Interestingly, the much-hyped removal of the interest rate cap is not the silver bullet needed to resolve the real estate financing woes.

Long-term funding

“Yields on Government securities need to come down. The most important impediment to borrowing for housing is lack of long-term funding at affordable rates. Government efforts to manage the government bond market more efficiently and lower the benchmark, risk free rate would be the most critical policy reform to unlock affordable housing,” the report says.

In the past, the government has tried to provide incentives meant to jumpstart the housing sector. They include tax relief to developers building 100 affordable homes. However, there is little evidence to show that such offers have yielded the intended results.

On Friday last week, Transport, Housing and Urban Infrastructure Cabinet Secretary James Macharia said that the Government had come up with a special-purpose vehicle, National Housing Development Fund, that would create a housing kitty from pension funds, Saccos and banks.

The entire pension industry in Kenya sits on assets worth Sh963 billion as at the end of June 2017, up from Sh396.7 billion in June 2010.

However, the current allocation to real estate stands at 21.3 per cent. Reinvesting more of this cash into real estate will require a review of the Retirement Benefits Authority Act to allow schemes to put more than 30 per cent of the funds into the housing sector.

In addition, the government intends to set up a Mortgage Refinancing Company (MRC) to enable longer-term and affordable loans by financial institutions.

“We are planning to come up with a special bond, like the M-Akiba bond, to see if ordinary Kenyans can contribute by putting their savings in this fund,” said Mr Macharia.

This week’s report by real estate and investment firm Cytonn says similar Government initiatives involving the private sector have not had much success owing to bureaucracy, especially lack of clear policies on implementation.

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