Real estate firm Suraya secures Sh1.6bn to complete projects

Suraya Property Group has secured Sh1.6 billion financing from four banks to complete mega housing projects, whose construction had fallen behind schedule due to the biting liquidity crisis that has hit the property sector as a result of interest rate capping.

The cash injection hands the company the much-needed lifeline to complete the projects.

Diamond Trust Bank (DTB), Cooperative Bank, National Bank of Kenya (NBK) and Equity Bank have refinanced the housing developer that targets middle and high-end buyers to enable it complete the projects the lenders had earlier financed.

The property developer said it is banking on the fresh capital boost to avert further delays of its remaining projects.

Suraya Property Group chief executive Peter Muraya said the funding negotiated separately with various lenders and at different times over the last nine months has seen the banks agree to the additional finance, creating a defined exit for buyers who can now take possession of their units.

“Each bank has undertaken to ensure that each of the projects they had financed is completed without further delays,” said Mr Muraya in a statement.

“We are now fully back on track to finish five out of the nine pending developments with the new funds,” added Mr Muraya. He said the firm was still keen to raise addition capital.

The announcement by the developer comes as a dip in prices and the slow uptake of newly-built units has raised fears of renewed pressure on developers, who borrowed to fund for-sale projects as obligations mature.

A slow down on growth of private sector credit is also hurting real estate, which heavily relies on bank loans for unit purchases.

Interest rates

The firm, which was founded in 2006 by Peter and Sue Muraya, had its operations adversely affected by the interest rate capping, which was introduced in 2016, prolonged political crisis in 2017 and macroeconomic factors such as increased inflation that has eroded the purchasing powers of home buyers.

“Despite these challenges, Suraya remains committed to complete all the remaining projects and our promise to all our clients is that we are working tirelessly to raise funds both locally and internationally for Lynx@ Muchai drive, Lynx @ Royal, Classix @ Fourways and The falls @ Riverside,” said Mr Muraya in the statement.

The funding, Mr Muraya said, has been secured for its Lavington project dubbed Terraces at a total cost of Sh700 million from Diamond Trust Bank (DTB Bank). The proposed development has a total of 133 units consisting of four, three and two-bedroom apartments arranged around a court.

Its Ngong Road-based Lynx project comprising one and two-bedroom apartments has secured Sh600 million from the National Bank of Kenya, Mr Muraya said.

The developer’s phase two development dubbed Encasa along Mombasa Road behind Mlolongo has secured Sh130 million from Co-operative Bank of Kenya.

The project occupies a total of 12.5 acres and is proposed to have a total of 625 apartments.

He said its Lynx West project based in Nairobi West and comprising two bedroom en suite apartments has secured Sh40 million from DTB while its Fourways project along Kiambu Road has secured Sh130 million from Equity Bank.

“The delays caused in completing the projects in their entirety are regrettable and our team has been in constant contact with our clients on email and phone regarding any issue,” he said in the statement.

Spring Valley

To date, Suraya said it has completed and handed over 2,000 homes to its clients since 2006. They include the Spring Valley Business Park along lower Kabete outside of Nairobi’s Westland’s commercial district that has a total area of 120,000 square feet. One of its flagship Fourways Junction Phase 1 project comprises 256 units.

The interest rate cap of 2016 coupled with an overall non-performing loan ratio of 12 per cent led banks to tighten their credit standards and offer variable loans rate, locking out middle to low-income would-be homeowners.

Normal bank lending is capped at 13 per cent. Bankers say the cap limiting commercial lending rates to four percentage points above the benchmark, has forced them to cut back on loans to high-risk groups.

The Central Bank of Kenya data said private sector credit had grown by 4.9 per cent in the 12 months to April, compared to 4.3 per cent in March, predicting further growth this year, despite banks’ complaints that a commercial lending cap was creating a credit squeeze.

The credit growth remained well below the Central Bank’s target rate of 12-15 per cent, a growth adequate to support economic development.

Kenya’s economy has grown robustly at an average of five per cent per annum in the past four years but that growth has been overshadowed by a steady fall in corporate profits, a stagnation in workers’ incomes and a series of employee retrenchments that have slowed down the sale of new housing units.

Loan defaults

Kenya’s mortgage market is going through a difficult period as a result of increased cases of loan defaults, slow uptake of new units and banks avoiding a market segment that has become one of the biggest contributors to their rising non-performing loans.

In Kenya, an average mortgage size of Sh9.1 million with an interest rate of 13.5 per cent and a tenure of 12 years translates into monthly payments of Sh130,700, which are unaffordable to over 90 per cent of Kenyans.

As a result, the government has set up the Kenya Mortgage Refinancing Company to act as a financial intermediary between the capital markets and financial institutions, particularly commercial banks that offer mortgage loans by providing them with long-term cash.

Through this plan, the government intends to construct at least 500,000 low-cost housing by 2022 as part of its Big Four Agenda.

Currently, commercial banks in Kenya hold only about 26,000 mortgage loans of an individual value of Sh11 million, according to the World Bank.

Kenya requires approximately 200,000 new housing units annually to meet demand, yet only 50,000 homes are built, leaving the housing deficit growing by 150,000 units per year.