NHC agonises over rent review amid depressed housing market

The National Housing Corporation (NHC), the State’s agency that handles housing matters, has revealed difficulties in the rental arm of its business citing unfavourable market conditions.

NHC argues that since the Covid-19 pandemic, it has become difficult to retain loyal tenants even as the agency seeks to improve its returns from the units it manages on behalf of the government.

As such, while the corporation mulls increasing rent in its strategic plan to improve income, it is faced with an unresponsive market that may cause a dent in its targets.

Rental properties are expected to play a key role in improving the corporation’s profits by a 540 per cent annual target as set in the strategic plan.

The revelations are based on an analysis of the agency’s 2019-2023 strategic plan where it cited rental yield as one of the challenges faced during the period. Even so, NHC targets to improve rental yield in the latest strategic plan 2023-2027.  

During the 2019-2023 period, NHC says it improved the marketing efforts for houses for rental, tenant purchase, and outright sale.

This was done by engaging with prospective tenants and purchasers on platforms such as social media.

The corporation details that in the period, it completed the development of 550 units out of a target of 185,000.

The management also took over the management of 1,370 Affordable Housing Programme units at Park Road.

It also raised Sh7.1 billion in the previous strategy.

Among the challenges the agency faced during the period, NHC has listed the stagnation of rental yields.

“Increasing rental yield has increasingly become difficult post the Covid-19 pandemic,” says NHC in the latest strategic plan.

It explains that even retaining tenants who have been faithfully paying has proven a challenge.

“For properties that are already nearing market levels, it may not be possible to increase rent in view of this,” it says.

In October 2023, the government proposed raising the rent on its units by 10 per cent because the rates had remained stagnant for a long, since 2001 when they were last reviewed, and civil servants are enjoying rates that are much lower than the rest of the market.

Early in the year, Principal Secretary of State Department for Housing Charles Hinga while appearing before the National Assembly’s Public Investment Committee said it was time civil servants pay the same rates as the market on government houses.  

There are about 56,800 government units occupied by civil servants. 

This challenge is against a market that has more renters than homeowners  as the corporation documents.

It cites the 2019 population census where Kenyan’s total population was 47.5 million with 31 per cent living in the urban areas.

“Further, about 90 per cent of Kenyans living in urban areas are on rental housing with about 65 per cent of them living in informal settlements,” it adds.

NHC says although most of the country’s population still resides in rural areas, Kenya’s trend towards urbanisation is projected to continue, with 50 per cent of the country’s population expected to live in urban areas by 2050.

“To cater to the increased population, it is estimated that over 250,000 additional housing units are required annually to satisfy the unmet need for decent and affordable housing. However, Kenya produces 50,000 housing units annually giving a 200,000 housing units’ deficit,” the Corporation says.

While NHC admits that it is finding it difficult to review rent upwards, it details in the strategic plan that it seeks to grow its operating profits by 540 per cent annually.

This is through the EPS (Expanded polystyrene panels) factory that is expected to break even in the current financial year, raising revenue through its products mainly tenant purchase schemes and rental property.

Under the Housing Market Dynamic strategic issue, whose strategic goal is to maximise revenues and reduce costs, NHC plans to carry out rent reviews for schemes as well as collect 100 per cent of rent that is due.

In the rent review, at least 15 schemes will be reviewed. During the next five years, the agency targets to collect Sh2.2 billion from rental property.

NHC states that the rationale for this strategic plan is informed by the existing gap in housing.

It highlights the rapid urbanisation at 4.4 per cent per annum. “The corporation will embark on an ambitious journey where it expects to deliver a total of 110,000 units through direct construction and strategic partnership with public and private players,” it says.

“The houses will include rental units, tenant purchase, and outright sale for the working population and students in our country.”