Africa lags behind in housing its people. In Kenya, East Africa’s economic powerhouse, the statistics are stark. There’s a deficit of about two million houses yet only 50,000 houses are constructed every year. The deficit indicates a yawning gap. According to government statistics, the country has been experiencing an annual shortfall of housing, exceeding 250,000 units.
There has also been an occurrence of rapid urbanisation which is as a result of devolution and improved infrastructure. One of the tools that measures the level of housing at the national level is the ratio of the mortgage book to the GDP. World Bank statistics show that the mortgage to GDP ratio in Kenya stands at 4 per cent. It’s the highest in the region with Rwanda coming close. Uganda and Tanzania each has a mortgage book to GDP ratio of one per cent.
By contrast, South Africa has a mortgage to GDP ratio of 25 per cent, the highest in Africa. In Europe, the ratio is 75 per cent while in Singapore the ratio is 90 per cent. KCB Bank Director, Mortgages, Sam Muturi says the lacuna in low-cost housing offers an excellent opportunity for investors eyeing the real estate market. “The supply of housing in Kenya is mainly for middle to upper income brackets. But we have seen in the last few years a growth in the low income part of the business. From where I sit, I’m very bullish. I see high demand continuing after the elections. Even the commercial side of the business; I see that growing as well,” said Mr Muturi. According to the Economic Survey 2017, the construction industry grew by 9.2 per cent in 2016 from an expansion of 13.9 per cent registered in 2015.
It shows that the value of reported new buildings completed in Nairobi registered a growth of 7.6 per cent to KShs76.2 billion in 2016. The value of reported building plans approved in Nairobi increased by 43.3 per cent from KShs215.2 billion in 2015 to KShs308.4 billion in 2016. But there are segments where the housing sector is experiencing challenges. “There are some areas where we have a glut in high-end houses and this tends to confuse some analysts who say the bubble is about to burst. We have oversupply in some specific areas but we do not have enough supply of houses,” says Mr Muturi.
According to the World Bank, Kenya is urbanising at a rate of 4.4 per cent, which is pushing demand for housing in urban areas and leaving a huge segment without affordable houses. To date, the government’s goal of increasing the formal supply of affordable housing is not being met. Kenya’s first medium term plan of the Vision 2030 strategy had an initial target of providing 200,000 housing units annually for all income levels by 2012, but fell short of this projection since only 3,000 units were provided between 2009 and 2012. A second medium-term plan for 2013-17 has a similar target of housing units, particularly focused on lower income households. “Kenya can make housing more affordable, which will in turn create new channels to boost overall economic growth both at the national and county levels,” said Mehnaz Safavian, Lead Financial Sector Specialist and co-author of the World Bank report on housing in Kenya titled Unaffordable and Unavailable.
“With an urbanisation rate of 4.4% and 61% of urban households living in slums, the provision of housing finance and new housing finance products can help unlock the housing market to address the pressing need for affordable dwellings, create new jobs, deepen the financial sector, and catalyse overall economic growth in the medium- to long-term,” said Ms Safavian. Also, the distribution of investment in the real estate market, says Mr Muturi, is skewed. Data shows that about 35 per cent of housing supply is in the upper income bracket while 48 per cent is in the middle income bracket. The position is buttressed by World Bank findings published in a recent report that says many Kenyans are unnecessarily living in slum dwellings, because of limited supply and lack of affordability. “There is a critical need to deliver housing at the lower end of the income spectrum. Given Kenya’s growth and urbanisation rates, the problem will only become more acute over the next decades,” says the WB report. According to Mr Muturi, there’s a glut in the office block segment but the statistics show there is an opportunity in the low-end segment.
The market is in the low income bracket. The houses supplied in the market today are only affordable to a very small segment. A very huge population of Nairobi that has some form of formal income cannot afford houses. The problem we have here is on the supply side,” says Mr Muturi. “However, the real estate market is generally doing very well in this country compared to other countries in the region,” he added. “It’s a sector that people – businessmen, employed people – look at as the ultimate investment, either on the residential side or the commercial real estate.”
According to Construction Online Review, a leading African monthly construction journal, the huge deficit in infrastructure including rail, roads and ports present a significant case for continuing growth in the building and construction sector, which employs at least one million people. The rapid growth in population, which has led to a soaring demand for housing in most parts of the country, presents a major opportunity for growth as private developers keep up with this demand, reports the journal. The emergence of interest in the low income housing sector now means that more people can own homes, especially with the prevailing interest rates regime. With the interest capping law in effect, there is a renewed air of affordability especially among developers. “The new rates at 14% have not been much of a shocker to us as for many years, we have given mortgages at 12.9% and 13.9%. It is true that margins have thinned but now it’s on us to ensure that we move volumes to hit our targets, says Mr Muturi.
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