Can KMRC overcome hurdles to spur mortgage uptake?

When former President Uhuru Kenyatta unveiled the Kenya Mortgage Refinance Company (KMRC) in 2019, he envisioned a more affordable pathway for Kenyans to own homes.

It was expected to be a catapult for his Affordable Housing Programme (AHP), then part of the Big Four Agenda, which sought to facilitate 200,000 units annually.

It is a goal his predecessor, President William Ruto, who was then his deputy, has inherited, perhaps with a clearer roadmap, though by stepping on Kenyan’s toes. This has seen the implementation of the Affordable Housing Levy.

The intention of KMRC, as noted by Mr Kenyatta then, was to ensure increased uptake of mortgages. He projected 60,000 mortgage loan accounts by 2022 from the stagnant 26,000.

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“Our deliberate inclusion of Saccos is unique and would broaden the reach of housing finance to borrowers with low and informal incomes,” said Mr Kenyatta then.

Yet five years down the line, there is almost not much of a tale to tell when numbers are put into perspective. When mortgage loan accounts for 2019 and 2022 are juxtaposed, it’s a drop.

Since its inception, KMRC has disbursed Sh10.4 billion by the end of 2023. This has facilitated 3,252 loans all priced at a fixed rate of below 10 per cent.

KMRC Chief Executive Johnstone Oltetia says the institution has transformed the housing market by providing long-term funds with repayments of 20 to 25 years.

This is a game changer, he says. “Before KMRC provided such funding, the average tenure of mortgages in our market in 2022 stood at 10.9 years with a minimum of five years and a maximum of 18 years,” he says.

By 2023, the average tenure stood at 12.33 years for commercial banks and 13.72 years for Saccos.

“The longer loan tenures significantly lower the debt burden by allowing borrowers to spread their repayments over a long term, reducing monthly payment amounts and making home ownership more affordable,” says Oltetia.

In 2019, according to the Central Bank of Kenya (CBK) Bank Supervision Annual Report, the number of mortgage loan accounts stood at 27,993. In 2022, this figure has gone down by 207 to 27,786.

Since 2019, the number of mortgage loan accounts has been dropping and only to pick up in 2022.

In 2020, a year after KMRC was formed, the number of mortgage loan accounts dropped from 27,993 to 26,971. It dropped further in 2021 to 26,723 then increased by 1,063 in 2022 to 27,786.

“This was mainly due to new mortgage loans granted in the year,” reads the 2022 CBK’s Bank Annual Supervision Report.

When these figures are compared to the 3,252 mortgage loans facilitated by KMRC it begs the question: can KMRC facilitate mortgage uptake to the envisioned 60,000 annually?

The business model of KMRC does not allow it to deal directly with customers. It refinances mortgages provided by commercial banks and Saccos who have direct contact with customers. KMRC refinances these mortgage loans at single digits and commercial banks and Saccos are expected to also pass the benefit through a single digit that now stands at 9.5 per cent.

At this year’s East African Property Summit (EAPI) held in Nairobi in April, KMRC made a presentation that detailed the challenges of the country’s housing market.  

Lack of long-term finance tops the list as it indicates that currently, financial institutions hold predominantly short-term deposits. Few institutions as well have access to the capital markets.

The other challenge is enabling legislation that makes housing finance expensive and risky. “Lengthy and cumbersome legal processes for property titling and registration, little standardisation of mortgage documentation, and inefficient foreclosure processes,” reads the presentation.

There is also a high cost of construction, which impacts developer financing and appetite to move further down the market.

Early in the year, KMRC revised its income threshold for those who are eligible for single-digit mortgage loans from Sh150,000 to Sh200,000 perhaps to also spur uptake.

The institution offers loans up to Sh10.5 million. The average mortgage loan size as of 2022 stood at Sh9 million. In 2019, it was Sh8.4 million.

These efforts to spur uptake have seen KMRC tweak some of its products to include financing to developers, tenant purchase schemes, rent-to-own, green loans, and Shariah-compliant mortgages.

Besides these efforts, KMRC also views the Affordable Housing Programme, particularly now with the Affordable Housing Levy charged at 1.5 per cent of gross pay, as the catalyst that will make its products have demand.

Mr Oltetia believes that with the State putting up units across the country, there will be a synonymous reaction to mortgage uptake.

But players in the affordable housing space, such as the Chief Executive of Mi Vida Homes Samuel Kariuki, have held the opinion that there is more demand for rental than home ownership.

Additionally, unlike the private sector, where there is institutional investment and institutional uptake of units, such is not found in State-funded projects.

“Even if the government has the capability, they have to build capacity to execute the projects and churn them out very quickly,” he told Real Estate. “Quality affordable rental is a need, but affordable ownership is a wasnt.”

The government’s primary concern on housing is the low and middle-income individuals –those within the range of KMRC income bracket.

Yet the majority of these middle-income individuals can also be served with units provided by developers such as Mr Kariuki and do not have to wait for a lottery, or when the State-funded developer will finish a block of apartments in three or so years.

Besides, not all those who apply for affordable or social housing by the government through the Boma Yangu portal are quality customers credit-wise.

“There is always a concern by institutional investors: are these (Kenyan accounts on Boma Yangu) quality buyers? It is one thing to pay 10 per cent for a unit and say, ‘Let me go look for the other 90 per cent.’ Is there a guarantee I will keep up with the payments?” poses Mr Kariuki.