Home ownership now a lot easier for all civil servants      

Civil servants, as well as non-government employees, will from next year be able to buy houses thanks to a four-party memorandum of understanding (MoU) signed between the government, the China-Africa Development Fund (CAD-Fund) and local housing firm Suraya Property Group, and China Civil Engineering Construction Company (CCECC).

 The deal, which took almost three years to come through, is aimed at building more than 20,000 houses for government workers, although some units will be availed to the public as the government moves to reduce the cost of housing, which has been beyond the reach of most people for a long time

Suraya Group Chief Executive Pete Muraya, the brainchild of the project, said that according to the terms of the agreement, the government will provide land and manage the end products while the CAD-Fund and CCECC will provide funding and build the houses respectively.

“We are also addressing all types of housing, where we are targeting maybe Sh 1  million or less, and we are going up to the senior civil servants who  might want, perhaps a bigger house on a quarter of an acre,” Mr Muraya said. “One of the challenges we found is that land has become very expensive and property prices have become rather distorted in the market. This basically means that a lot of people are locked out. With this arrangement, land, which accounts for  more than 40 per cent of the total housing cost, is subsidised by government. Thus we will be able to bring down the cost of these units to make them affordable to civil servants and Kenyans.”

Transport and Infrastructure Cabinet Secretary James Macharia said that the project will help reduce the deficiencies in sheltering its workers since the government will provide land on which the units will be built by CCECC, with funding from the CAD-Fund.

HUGE DEFICIT

“There is a huge deficit and from our own estimations, this project is very timely and will be a catalyst for many other projects. Joint ventures and public private partnerships can help bridge the gap. For us in the government, we shall provide enough incentives, and we need all these partners to complement and support our efforts,” Mr Macharia added.

Launched in 2007 with an initial capital of Sh100 billion from the China Development Bank, the CAD-Fund has managed to raise Sh500 billion, and this will be its first project in the region. It already has other projects in Ghana, Egypt, Ethiopia and Nigeria.

Mr Muraya revealed that they approached CAD Fund with the idea  three years ago, but not with the  intention of having the fund lend  the government money as that would have been difficult to structure.

“We asked them to provide money to construct the houses while the government provided the land, which it would then sell to its  staff. Today, most civil servants can’t buy houses in the market. When you look at that segment, there are virtually no houses being built for them and the last time it was done, the National Housing Corporation built the Ngara houses, which were fewer than 700 units. We thought of bridging the gap and we are now offering a full package that will also see the deal allow for single-digit mortgages to be managed by a consortium of local banks,” Mr Muraya said.

In 2012, the National Housing Corporation built the 656-unit Ngara Housing Project in Nairobi, the largest civil servant housing scheme in Kenya in recent times, at a  cost $2 billion. The scheme consists of two bed-room and three-bedroom apartments, which were sold for Sh3. 2 million and Sh4.2 million each respectively.

The scheme is said to have benefited thousands of civil servants who either rented the houses or resold them to the public. Most of those who bought into the project benefited from a 5 per cent mortgage facility through the Civil Service Housing Fund in Kenya, which had a repayment period of up to 18 years.

The cost of land in Nairobi, for example, accounts for about half the construction cost, which means the end products are often very expensive. With the government sitting on prime and accessible land, the agreement will, hopefully, see the construction of  some 10,000 low-cost housing units for  government employees at Nairobi’s Park Road, Shauri Moyo and Starehe under a public-private partnership agreement. With the county and national governments freeing up land for the construction of homes, the overall cost of construction should come down considerably and go a long way in addressing the housing deficit.

SINGLE-DIGIT INTEREST RATES

With regard to financing, the agreement will allow civil servants to access mortgages at single-digit interest rates to make it possible for them to pay for the houses. With replicas of Buru Buru Estate envisages, the consortium is looking to build houses costing from as low as Sh4 million to Sh20 million, with a mix of apartments, villas and maisonettes.

In May last year, the Salaries and Remuneration Commission allowed civil servants to take mortgage loans of between Sh4 million shillings and Sh20 million, depending on an individual’s job group. This allows government workers to borrow from the scheme to either buy property or build homes.

In December last year, land Cabinet Secretary Jacob Kaimenyi published new regulations that ease access to a mortgage scheme, which they were offered early this year. The Civil Servants (Housing Scheme Fund) (Amendment) Regulations 2015 capped the maximum interest rate on home loans at five per cent and extended the repayment period from 18 to 20 years. Under the scheme, top-ranking public officers in job groups S, T, U and equivalent grades will access up to Sh20 million in home loans. Junior officers such as cleaners and messengers will be entitled to a mortgage of up to Sh4 million.

“We are hoping to have the interest rates on these mortgages at below 10 per cent so that everyone can afford them. The government has structures and classifications of its staff and with its new civil servants housing scheme, it will be easy to package the houses and mortgages for the staff, that’s why we are pegging these units on them. That is how we came up with the CAD Fund long-term funding for mortgage loans and managed to convince them not only to build the houses, but also to provide financing for mortgages for the purchase of the same units,” Mr Muraya said.

The deal will also see commercial banks, which will serve as administrators of the loan scheme on behalf of the government and the CAD Fund, emerge the biggest winners even though they will only be earning fees on the mortgages in the form of administration costs.

MORE BANKS TO BE BROUGHT IN

Currently, KCB and Housing Finance manage the civil servants’ mortgage scheme although it is expected that more banks will be brought in to cater for the anticipated growth in the number of applications as interest in the 20,000 units is likely to be high.

We will rope in the financiers to administer the mortgage fund. They will lay out the terms and conditions, which  include credit ratings and scores, due diligence and one’s credit reference bureau status report,” Mr Muraya said.

The 20,000 houses will target the police, civil servants, the military, parastatal officials and county government workers. The country’ has an annual housing shortage some  200,000 units. the project will also be open to the public, allowing them to enjoy these benefits.

Cytonn Investments Management Ltd investment manager Maurice Oduor said that the single-digit mortgage rates are attractive and will spur a lot of interest in the country’s construction sector.

“For  civil servants, any mortgage below five per cent is something many of them will afford. We will see a significant growth despite the harsh interest rate environment in the country,” Mr Oduor said.

Offer on a quota basis

However, public housing is also an element of the project and the  public will have access to these facilities on a quota basis, but at slightly higher rates than civil servants, although still on single-digit interest mortgage loans.

“For us, as Suraya, we will be left with consultancies and design, and also provide project management. On those projects that will be open to the public, we will manage the sales too,” Mr Muraya  said.

The project signals the intent of the Chinese to set up base in Kenya by supporting their own enterprises.  The CAD-Fund, China’s largest private equity fund which is controlled by the China Development Bank, officially opened an  office in Nairobi’s Upper Hill last month.

Chi Jianxin, CAD-Fund’s chairman said the Nairobi office will also serve as the  regional headquarters for the Eastern Africa region, making it the fourth such office set up in Africa since 2006.

“We do not currently have many investments in Kenya, but after the establishment of this regional office, we want to set up this Kenya office as the headquarters of the region. It provides a big advantage for Kenya as we can improve local exports by directly investing in firms here,” Mr. Jianxin said.

Although the exact cost of the  project has not been made public, it could run into tens of billions, depending on the size of the houses, making it one of the most ambitious housing projects in the region, if successfully executed.

China Civil Engineering Construction Company (CCECC) is expected to start preparing two sites in Shauri Moyo and Starehe early next year, with  the first phase of the project expected to be completed in a year. 

“We do not have any encumbrances at the moment. The project contractor was willing to start work last month but we all agreed on a February timeline with a one-year completion timeline. We will also be doing an industrial park that will allow us to set up factories for most of the imported housing products from China. This should see most of the project’s material made locally and reduce the importation bill,” Mr. Muraya said.

Treasury Cabinet Secretary Henry Rotich said that the country will greatly benefit from the secondary mortgage financing option as this will now bring completion to the sector that has in decades remained rigid

“The high cost of borrowing has been another issue blighting the prospects for prospective home owners. I am happy that through this private public partnership, the cost of financing in home acquisition is adequately addressed and is a single-digit figure as per our wish. This will see more people get drawn into the mortgage schemes, which is good news for the economy. Kenyans will now enjoy the benefits of secondary home financing,” Mr Rotich said.