Unless government acts soon, even the middle class won’t have anywhere to live
Posted Sunday, May 27 2012 at 17:35
Since the much-vaunted property boom started in the country about a decade ago, developers have had to contend with public perception that they are driven by the urge to make “super-profits” rather than by the need to solve the biting housing shortage.
The developers have often shot back, saying that if they are making good profits, it is because they are taking “significant” risks.
Save for the impact of the rising costs of land, building materials and borrowing, real estate development is, indeed, a lucrative business in Kenya.
Sample this: Two years ago, some standard stand-alone houses just a few kilometres from Nairobi’s city centre were each going for about Sh12 million when construction began.
With the construction over, each house is now going for about Sh17 million. In Embakasi, an apartment that was priced at Sh3.5 million at the beginning of construction fetched Sh6.5 million on completion two years later.
The point here is that in each case, the developer would have made good profit even by selling the property at the initial price.
Many have asked whether such a level of profit is moral, but that is debatable. What is clear is that the developers are simply exploiting the law of demand and supply.
With the government now only playing a facilitation role, housing provision is firmly in the hands of private developers whose main motivation is profits.
The result is that Kenya’s housing market is now pyramid-shaped: nearly all the new units being offloaded onto the market target the upper-middle and upper class.
The number goes down significantly as you go down through the middle, lower middle and the low-income segments. Yet it is in these last three categories where housing shortage is greatest.
In fact, it is estimated that more than 80 per cent of the new houses built are for the high and upper-middle income earners. This is despite the fact that 83 per cent of the total housing demand is for the low-income and lower-middle income groups.
When challenged about it, developers have a valid point: “We are in business; we make profits by targeting the upper market segment. If you want us to put up low-cost housing, give us incentives.”
Well, in 2006, the government came up with an initiative that yielded a number of incentives in 2010. The incentives are expected to encourage private developers to venture into lower-middle and low-income housing.
But developers have maintained that to spur growth in the lower end of the market, the government should provide more.
Already, those targeting the low-cost market segment enjoy tax deductibility on housing loan, lower tax on housing bonds, tax deductibility for expenditure on social infrastructure, and tax deductibility on interest accrued from infrastructure and social services.
As this ping-pong battele goes on, many of us wonder whether the government is really serious about solving the housing crisis.
It was nice seeing Housing Finance mark the revival of its housing development arm – the Kenya Building Society which has been being defunct for 13 years, by launching a mega-housing project in Komarock.
But I was disappointed that the mortgage lender chose to target the upper-middle class instead of the lower-middle or the low-income segment of the population.