Kenya has a rapidly growing real estate and housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Kenya is 17.1 percent, as of September 2016, and requires at least a 10 percent down payment. There are currently 24 458 mortgages in the country, with the average mortgage size being US$ 81 717. The cheapest newly built house by a developer recorded by CAHF is US$ 15 753, which is for a 30 square metre unit. Cement prices are lower than the continental average, at US$ 7.29 for a 50-kilogram bag.
With an urbanisation rate of 4.28 percent, demand for affordable housing will remain strong, also for affordable rental. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken as the current average microloan size is only US$ 197. The recently imposed cap on interest rates may adversely affect one of Africa’s most encouraging affordable housing markets, but other encouraging policy, such as a tax incentive for affordable housing developers, will likely support market growth. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average Kenyan household can afford.
Find out more information on the housing finance sector of Kenya, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Kenya has gradually emerged from political instability and an economic slowdown as one of Africa’s most developed countries and among fastest growing economies in the world. International Investors are optimistic, market sentiments on the Kenyan economy are upbeat (for example, see Deloitte’s Economic Outlook 2015) and the country has a potential of becoming one of the best performing economies in Sub-Saharan Africa and also among middle income countries globally, according Diarietou Gaye, the World Bank’s Country Director for Kenya.
True to these assertions, Kenya’s economy has consistently posted superior performances over the last five years. It registered GDP growth rates of 6.1 percent in 2011, 4.6 percent in 2012, 5.7 percent in 2013, 5.3 percent in 2014 and 5.6 percent in 2015. According to the Economic Survey Report of the Kenya National Bureau of Statistics (KNBS), GDP growth in 2015 was a result of significant growths in the agricultural, construction, real estate, and financial and insurance sectors. The World Bank predicts that the economy will expand more to rise to about 5.9 percent in 2016 and 6.1 percent in 2017, predicated on infrastructure investments, easing pressure on interest rates and increasing credit uptake by the private sector due to the on-going fiscal consolidation and sound monetary policy.
Accordingly, prudent monetary policy restored stability in the currency markets and contained the 12-month average overall inflation at 6.6 percent in December 2015, easing from 6.9 percent in 2014. The Central Bank effectively managed currency volatility and running down forex reserves to cushion the Shilling. The current account deficit as a percentage of GDP narrowed, from 14.5 percent in 2014 to 11.4 percent in 2015, due to a substantial growth in export of goods and services and a reduction in the import bill. This saw the Kenyan Shilling, during the 12 months to June 2015, strengthen against the Euro by 6.7 percent and the Japanese Yen by 6.9 percent but weakened against the US Dollar by 5.4 percent and the Sterling Pound by 2.1 percent. All in all, Kenya has the potential to be one of Africa’s great success stories from its growing and youthful population, a dynamic private sector, a new constitution, and its pivotal role in East Africa. However, addressing challenges of poverty, inequality, widening budgetary gap, governance, low investments and low firm productivity to achieve rapid, sustained growth rates that will transform the lives of ordinary citizens, still remains challenging.
Housing markets are local, and housing market outcomes reflect local economic conditions (Hwang & Quigley, 2006). As such, favourable changes in economic conditions, income, and employment and monetary policies as documented in Kenya over the last year would be expected to have a profound effect on Kenya’s housing market, housing prices, vacancies, and residential construction activity.
Access to Finance
Kenya’s financial sector, which is regulated by the Central Bank of Kenya (CBK), is relatively. In its annual Bank Supervisory Report, CBK describes the structure of the Kenyan banking sector as at 31 December 2015 as having comprised of the Central Bank of Kenya, as the regulatory authority, 43 banking institutions (42 commercial banks and one mortgage finance company), eight representative offices of foreign banks, 12 microfinance banks (MFBs), three credit reference bureaus (CRBs), 15 money remittance providers (MRPs) and 80 foreign exchange (forex) bureaus. Out of the 43 banking institutions, 40 were privately owned while the Kenyan government had majority ownership in three institutions. CBK also reports that the total net assets in the banking sector stood at Ksh 3.5 trillion (US$ 34.5 billion) as at 31 December 2015—local private banks accounted for 64.6 percent of the total net assets, a slight increase from 64.0 percent in December 2014.
In 2015, the performance of money market rates was mixed, perhaps in response to upward revisions of the Central Bank Rate (CBR). The CBR increased from 8.5 percent in December 2014 to 10.0 percent and 11.5 percent, in June and December 2015 respectively. The 91-day Treasury bill rate dropped from 8.58 percent in December 2014 to 8.26 percent in June 2015 and rising to 9.81 percent by December 2015. The interbank lending rate spiked in June 2015 to 11.78 percent from 6.91 percent in December 2014 before dropping to 7.27 percent in December 2015. Similar oscillations were reported for all commercial banks interest rates in 2015 with the exception of the savings deposit rate that dropped in December 2015. Commercial banks loans and advances lending interest rates rose to 17.45 percent in December 2015 from 15.99 percent in December 2014. The fluctuations in interest rates by commercial banks was similarly reflected in the loans-deposits interest rate spread which dropped from 9.18 percentage points in December 2014 to 8.84 percentage points in June 2015 and rose to 9.53 percentage points in December 2015.
On financial inclusion and innovation, CBK reports that the number of bank branches increased by 80 to 1 523 branches between 2014 and 2015. Similarly, customer deposits increased by 8.73 percent from Ksh 2.29 trillion (US$ 22.5 billion) in December 2014 to Ksh 2.49 trillion (US$ 24.5 billion) in December 2015. CBK has financial inclusion as one of its key focuses, and has increased the number of microfinance banks by issuing licences to Daraja Microfinance Bank Ltd and Choice Microfinance Bank Ltd, and a nationwide licence to Caritas Microfinance Bank Limited. CBK has also initiated financial inclusion surveys such as the FinAccess Geospatial Mapping Survey and FinAccess Supply Side Survey in conjunction with Financial Sector Deepening (FSD) Trust and the KNBS. The FinAccess Geospatial Mapping survey estimated that 73 percent of the population is living within a three kilometre radius of a financial services access touch point, there was a 37.9 percent increase in mobile money agents, stand-alone ATMs increased by 24 percent and financial services access touch-points per 100 000 people also increased to 218 in 2015, compared to 162 in 2013.
Specific to housing finance, CBK, once again, undertook a survey on the development of the mortgage market for residential housing in Kenya. From this survey, it was revealed that the value of mortgage loan assets outstanding increased from Ksh 164.0 billion (US$ 1.6 billion) in December 2014 to Ksh 203.3 billion (US$ 2 billion) in December 2015, representing a growth of Ksh 39.3 billion (US$ 386.9 million) or 23.0 percent. It was also revealed that the non-performing loans (NPLs) for mortgages increased from Ksh 10.8 billion (US$ 106.3 million) in December 2014 to Ksh 11.7 billion (US$ 115.2 million) in December 2015. The mortgage NPLs to gross mortgage loans was 5.8 percent, which was below the industry non-performing loans to gross loans ratio of seven percent. The survey also showed that there were 24 458 mortgage loans in the market in December 2015, up from 22 013 in December 2014—an increase of 2 445 loan accounts or 11.1 percent due to increased demand from the expanding middle class. At the same time, the average mortgage loan size increased from Ksh 7.5 million (US$ 73 841) in 2014 to Ksh 8.3 million (US$ 81 717) in 2015 due to increased property prices. Despite this growth, the number of institutions offering mortgages dropped from 37 in 2015 to 34. The decline in the number of commercial banks offering mortgage loans is attributable to the liquidation of the Dubai Bank and placement of the Imperial Bank Limited and the Chase Bank Limited in receivership.
The interest rate charged in 2015 on mortgages, on average, was 17.1 percent and ranged between 11.9 percent and 23 percent as compared to 15.8 percent average in 2014. 89.3 percent of mortgage loans were on variable interest rates basis in 2015, compared to 92.5 percent in 2014. Interestingly, the loan to value was still being pegged below 90 percent by the majority of the banks in 2015 and 2014 but the average loan maturity was 9.6 years, compared to 10.6 years in 2014. Finally, the survey showed that the high cost of houses, high interest rates on mortgages, high incidental cost of mortgages, low levels of income and difficulties with property registration and titling remain the major inhibiting factors to the growth of the Kenyan mortgage market.
Cooperative movements remain important stakeholders with regards to supporting the mortgage market. The National Cooperative Housing Union (NACHU), an apex organisation made of registered primary housing cooperatives, works to provide affordable and decent housing to Kenyans within the low and modest income communities. NACHU has more than 800 housing cooperatives in eight regions of Kenya and has become a leading organisation in the provision of housing microfinance, capacity building and technical services. NACHU has supported various community housing and real estate project. Currently running projects include the Alfa Mwanda Housing Project in Nakuru (33 units), Faith Foundation Housing Project in Nairobi (52 units), Kabiria Housing Project in Nairobi (37 units), Mutindwa/Good Neighbours Housing Project (39 units), Ngumo Mbega Housing Project (20 units) and the Royal Housing Project (50 units).
Altogether, access to finance remains below developed countries. Yet key statistics, such as loan and advances from the banking sector, indicate a significant positive change. According to CBK, loan and advances from banks increased by 15.12 percent from Ksh 1 881 billion (US$ 18.5 billion) in December 2014 to Ksh 2 091.4 billion (US$ 20.6 billion) in December 2015.
On the demand-side of the Kenya’s housing market, as the economy and urban population expand, a matter of grave concern still remains affordability. Going by the Kenya Bankers Association’s Housing Price Index (KBA-HPI), the overall house prices have sustained a positive change for the whole of 2015 and the first two quarters of 2016. This view is similarly held by the Knight Frank index and the HassConsult’s Composite Sales Index. In fact, HassConsult point out in their report that, since the first quarter of 2016, the growth in house prices has consistently exceeded growth in land prices for the first time in nine years. Accordingly, HassConsult presents that the all property average asking house price is Ksh 31.1 million (US$ 306 193), while sellers of four to six bedroom houses were asking for Ksh 46.7 million (US$ 459 781), on average, whereas those selling one to three bedroom houses recorded an average asking price of Ksh 14.1 million (US$ 138 820) by the end of the second quarter of 2016. Given these high house prices and noting that the prices are still on a generally upward drift, the burgeoning question is: What proportion of Kenyans would afford such houses? For a prospective buyer to qualify for a Ksh 14.1 million (US$ 138 820) mortgage at the average interest rate of 17.45 percent, such buyers must be able to pay about Ksh 170, 000 (US$ 1 674) per month. To make this payment, the monthly income of the buyer must be at least Ksh 300, 000 (US$ 2 954) per month, assuming a restrictive loan-to-income ratio of 55 percent. This is beyond the income of over 99 percent of Kenyans, including the middle-class, highlighting the affordability challenges facing buyers.
More and more developers are now focussing on the affordable housing segment, building smaller units at much lower prices. Jamii Bora (trading as Urbanis Africa) and Karibu Homes-Parktel (in partnership with Shelter Afrique) are among the pioneering developers to implement this strategy. Karibu Homes, for instance, has a project of 1 074 units, which includes one-bedroomed houses priced at about Ksh 1.6 million (US$ 15 753). Urbanis Africa, on the other hand, has, for several years, launched several affordable housing project which once completed will churn out more than 5 000 units. Other developments include the 1 000 units by Suraya Property Group priced at Ksh 2.9 million (US$ 28 552) and 2 000 units by Erdemann Property Ltd for Ksh 6 million (US$ 59 073) and Ksh 7 million (US$ 68 918) for two and three bedroomed units, respectively.
The CAHF (2015) estimates the annual housing requirement in Kenya at about 132 000 units per government projects annual production at 50 000 units, leaving a recurrent annual deficit at about 82 000 units. This huge deficit indicates a dire need for increased housing investment, especially innovative and targeted developments, to boast supply. Statistics on investment into housing indicates that there is a growing interest in this sector. According to the annual economic survey of KNBS, only Ksh 127.7 billion (US$ 1.6 billion) was invested into housing production in 2010 but investment in dwellings has consistently been on the rise, recording growth at a rate of 15.2 percent, 17.2 percent, 14.6 percent and 17.3 percent in 2011, 2012, 2013 and 2014, respectively. In 2015, about Ksh 257.3 billion (US$ 2.5 billion) was injected into the housing sector country-wide with Nairobi alone receiving above Ksh 58.4 billion (US$ 575 million), accounting for roughly 7 479 new housing units.
The government still remains a major player and supplier of housing in Kenya. With an aim of addressing the low-level of urban homeownership and arrest the spreading slums and squatter settlements, the approved government budget for housing is expected to increase significantly to Ksh 7.9 billion (US$ 77.8 million) in 2015/16 from Ksh 3.88 billion (US$ 38.2 million) in 2011/12, Ksh 5.21 billion (US$ 51.3 million) in 2012/13, Ksh 7.03 billion (US$ 69.2 million) in 2013/14 and Ksh 7.4 billion (US$ 72.9 million) in 2014/15. However, the actual expenditure on housing decreased from Ksh 6.1 billion (US$ 60.1 million) in 2013/14 to Ksh 5.9 billion (US$ 58.1 million) in 2014/15 as fewer projects were completed. Although the approved budget in 2014/15 was Ksh 7.4 billion (US$ 72.9 million), the amount spent was Ksh5.9 billion (US$58.1 million), representing impressive 79.2 percent utilisation.
As international investors’ confidence returns, security concerns lifted, house prices in Kenya have generally recorded considerable surges in 2015 and in the first two quarters of 2016. This is basically reflected on all three available indices from different sources. According to the Knight Frank Prime Global Cities Index, prices of luxury homes in Nairobi increased by 3.3 percent and 2.2 percent for a 12-months’ period and six-month period ending March 2016, respectively. Based on the annual performance, Nairobi is now ranked 15 in their 35-city survey, up two positions from 17 in the last quarter of 2015. Separately, HassConsult Property Index, which tracks asking prices, shows that prices for individual suburbs in the luxury market segment in Nairobi recorded a much higher increase in asking prices in 2015, especially in Karen (17.3 percent), Loresho (12.8 percent), Gigiri (11.3 percent), Lavington (10.2 percent) and Spring Valley (9.7 percent).
On the whole, however, all indices tend to agree that house and rental prices recorded significant increases in 2015 and the first half of 2016. According to HassConsult Property Index, the overall asking house prices in Nairobi rose by about 9.6 percent from 2014 prices while rental prices rose by 5.4 percent. The KBA-HPI at the end of 2015 showed an improvement of the overall house prices by 5.34 percent from prices by the end of December 2015 and the same index by the end of the second quarter of 2016 indicates an increase by 1.74 percent compared to the 1.4 percent rise during the first quarter. In the opinion of Kenya Bankers Association, the surge in house prices is instigated by developers’ preference of the middle end of the market, developers’ inclination towards renting than selling, growing mortgage market and gradual opening up of new geographical areas for housing development in response to physical infrastructure expansion, especially transport.
Housing Policy and Regulations
Bruce (2015) of USAID puts it rather clear that the way in which nations define property rights—such as private, public, state-held—and permit citizen to hold property (e.g., private, leaseholds, etc.) and defend those rights through the rule of law or administrative procedures, greatly influences the processes of globalization, national economic growth, and the development of a democratic society. In Kenya, the Ministry of Land, Housing and Urban Development and the National Land Commission (NLC) are two main institutions responsible for land administration. The ministry is part of the executive arm of the national government while the NLC is an independent body created by the 2010 Constitution.
Noting the existence of many land laws, the Ministry realised that some of the laws were incompatible and resulted into a complex land management and administration system, fragmentation and breakdown in land administration, disparities in land ownership and poverty. To address these problems, from 2010, the Ministry embarked on the formulation of a several land laws in line with the constitution that had just been promulgated in 2010. The resultant new laws include the National Land Commission Act of 2012, the Land Registration Act of 2012 and the Land Act of 2012. The new laws have repealed the Indian Transfer of Property Act, the Government Lands Act, the Registration of Titles Act, the Land Titles Act, the Registered Land Act, the Wayleaves Act and the Land Acquisition Act. The Land Control Act, the Landlord and Tenant (Hotels, Shops and Catering Establishments) Act, the Sectional Properties Act and the Distress for Rent Act were not repealed.
Since enactment of this laws and the formation of NLC, administrative structures for management of land in Kenya changed considerably. The NLC, created in 2012, has a range of functions including advising the national government on a comprehensive programme for the registration of land titles, management of public land, implementing settlement programmes, developing an effective land information system and managing a land compensation fund. Another important function of NLC will be the allocation of public land. The allocation of public land to private individuals has been a concern for many Kenyans for a long time. Allocation of public land was within the control of public officers at the Ministry of Lands, who were susceptible to influence by the executive arm of the government. The process of allocation of public land was therefore shrouded in secrecy and, often, members of the public would only realise that public land has been expropriated, after a title deed has been issued to private persons.
Housing Sector Opportunities
Kenya requires the construction of at least 132 000 units per annum to cater for new urban dwellers and has a backlog of 1.85 million units. Even as the need is obviously present, the fact remains that only a handful of Kenyans can afford a formally built house and that the majority would prefer to rent unless the cost is brought down to a truly affordable price. True to these words, the housing case for Kenya is basically a case for affordable housing. In the words of Aden Van Noppen, of Acumen Fund, providing more affordable homes and housing finance in Kenya is not impossible and there are a growing number of groups who are making strides in this direction. They are taking risks and testing new models, and many of them need capital from patient impact investors in order to move forward. For instance, on end-user finance, products that match cash flows of the middle and low income earners are likely to be appealing to many customers, such as home improvement loans, incremental construction financing, group loans and joint-income loans.
On the supply side, developers will be able to make a significant impact by constructing smaller units (studio, one-bedroom and two-bedroom units), making joint purchase of land to reduce overall cost of completed units, sourcing concessionary loans at lower interest rates and by using alternative building materials. Typical examples on this would include the already successful Karibu Homes-Parktel, Suraya Property Group, Erdemann Property Ltd and Jamii Bora trading as Urbanis Africa, among others, who have ventured and proven that development of affordable houses is still possible.