Bank rates and funding avenues biggest concerns for developers

Last year the property industry showed signs of recovery after the high interest rates experienced in 2011 and 2012 negatively impacted on real estate development.

The latest quarterly index report, conducted by real estate consulting firm Hass Consult, shows that Kenya’s property market has improved thanks to lower interest rates.

The last 20 or so months also proved tough for the real estate industry as there was a decline in demand for suburban housing, particularly from first-time buyers.

According to the quarterly index by Hass Consult, the first quarter of 2014 saw increased demand for high-end houses which revived a glimmer of hope for growth in the real estate industry.

This year, experts and stakeholders predict good returns for those who want to invest in real estate. There has been divided opinion over the ‘real-estate bubble’ but most remain optimistic that 2015 will be the year of recovery and stability.

Carol Kariuki, the founder and Managing Director of the Mortgage Company, says real estate investors have every reason to smile this year.

“We will finally crack the funding dilemma by doing some securitisation, which means we will get a lower cost of borrowing for all the people, which will open up the market,” says Ms Kariuki.

Securitisation will not only generate a new source of funds for real estate funding, but also revitalise the real estate industry by opening the market to first-time investors with limited funds.

For the average Kenyan, investing in the property market means securing a plot in the outskirts of Nairobi. These plots of land are either bought using one’s savings or through pooling of resources from investment groups.

Buying to build

The year 2015, specialists say, is the year those with a plot of land in the outskirts of Nairobi will be looking to build and develop.

Improved infrastructure to areas such as Ruiru, Rongai, Kitengela, Athi River, Ruai and the like has increased motivation for those who would rather live a few kilometers away from the hustle and bustle of the city.

“People have invested in the outskirts of Nairobi and with better infrastructure will not mind travelling a bit as long as they can have a home they own and love. I am expecting that with better infrastructure we will be able to see more home developments,” says Ms Kariuki.

Single-digit mortgages

Mortgage rates in Kenya today fall between 11 per cent and 19 per cent. Last year, Deputy President William Ruto said that the government was negotiating with local banks to reduce the mortgage rates to single digits in a bid to make home ownership affordable.

In a market with roughly 30,000 mortgages, home ownership through mortgage remains a mirage for many Kenyans. Many lower and middle income Kenyans shy away from mortgages due to the high interest rates, exorbitant land prices and equally expensive developer fees.

Whether mortgages will increase or decrease is solely dependent on banks.

“On the mortgage side, it will depend on the banks... if they will reduce their lending rates to see a much higher uptake of mortgages. If they don’t we will remain at our 30,000 level,” says Ms Kariuki.

Frank Ireri, Managing Director of Housing Finance, says the growth of the real estate industry in 2015 will rest entirely on the country’s macro economy.

“If the macro economy grows then the property market will also grow. In 2014 we saw a bit of stagnation but again the whole economy also stagnated. The real estate industry entirely depends on the macro economy, it cannot operate in isolation,” says Ireri.

Ireri links the high mortgage rates to high inflation rates, adding that the buck stops with government in making home ownership possible for the average Kenyan.

“The challenge we have in our market today is the cost of money, starting with the government cost of borrowing and high inflation rates that lead to high interest rates. It is a macro issue that the government has to solve. If the government reduces the cost of borrowing, we will reduce our lending rates,” says Ireri.

The Kenya Banks’ Reference Rate (KBRR), launched last year, is expected to provide a framework to guide mortgaging and lending in the country. This attempt by government to reduce the cost of borrowing is seen as a good move in growing mortgage assets in the country.

The KBRR, which was set at 9.13 per cent, took effect immediately. It will be reviewed every six months starting January this year, and already Central Bank of Kenya has lowered it to 8.54 per cent, starting January 14.

Stakeholders reckon that this will be a game changer for the real estate industry and the dream of owning a home will soon become a reality.

Developers like Sue Muraya, the Director of Suraya Property Group, hope that the government’s effort to clean the land registry through digitisation of the Ministry of Lands will finally pay off.

The streamlining of the land transfer process at the ministry of lands will be a big boost for developers and home owners because then the home ownership process will be less tedious.

“Once you are able to do your searches and registration on time you can transfer from one buyer to another on time. The digitisation of titles, which means you will be able to conduct a deed search in 24 hours, is a major milestone for people in our industry,” says Ms Muraya.

But perhaps Ms Muraya’s biggest expectation this year is that her clientele will have significantly more knowledge and understanding of what’s available in the market, so that people can make the right decisions when it comes to home ownership.

As is the wish any developer, Ms Muraya hopes that the maladies ailing the mortgage market will be sorted out this year.

“We are anticipating a drop in interest rates. Many people still don’t understand what KBRR was all about, and so they must be educated on what the rates regime means to them, particularly as borrowers who will be affected directly by upward or downward reviews,” says Ms Muraya.

With devolution and county governments in place, urbanisation in the counties will go a notch higher. This means that a lot more people will be happy to live within county headquarters that are now developing into urban centers, Ms Kariuki points out.

Chamas are no longer the social gatherings between women who collect money and give it to one lucky member in a merry-go-round format.

They have evolved into investment groups where members pool together their resources to purchase large tracts of land for later sub-division.

Investment groups such as Home Afrika have impressive portfolios in the real estate industry, setting the pace for other like-minded groups.

Experts advise Kenyans to join such groups because collective investments are better than individual ones as the risks are shared, and it is also much easier to spread the cost.

Chamas or investment groups should be registered with the Kenya Association of Investment Groups (KAIG) and the Amalgamated Chama Limited (ACL).

These organisations provide avenues for investment groups to pool their resources and see how best the monies collected can be invested for maximum returns.

Saccos and the investment groups are the future of the real estate industry and are expected to make a huge impact in 2015.

“These groups need to be motivated to take the next step in home ownership. I see saccos and co-operatives playing a much larger role in home ownership than even banks because co-operatives are offering the full solution,” says Ms Kariuki.

Demystifying home ownership, especially for first-time owners, remains the industry’s biggest challenge. If it is not a pipe dream, it is considered a luxury by many who have no idea where to start from.

This is the year when the discerning will finally enjoy a piece of the property pie.