Kenya’s Stima Savings and Credit Cooperative (SACCO) Limited has launched its Affordable Housing Mortgage Scheme in partnership with the Kenya Mortgage Refinance Company (KMRC), a treasury backed lender, targeting both individuals in formal and informal employment.
The purpose of the scheme is to offer affordable mortgages to members of the SACCO with bespoke terms.
For individuals who are employed, the SACCO will offer a loan up to a maximum of Sh4 million, at 9 percent interest rate, with a 25-years repayment plan.
For individuals in business or those with rental income, the loan will still be capped at Sh4 million, at 9.5 percent interest rate, with a repayment tenor of up to 20 years.
According to analysts from Cytonn Investment, an employed individual will be required to make monthly payments of about Sh33, 600 while a business home owner will pay Sh37, 300.
For salaried Kenyans, these payments are still far from affordable since contributing Sh33,600 for housing given an income at Sh50,000 is financially unviable.
“Despite the unviability of the scheme for most income earners, the move by Stima SACCO and KMRC is a step in the right direction towards improving home ownership rate in the country through offering affordable mortgages,” the analysts noted.
In December 2020, Stima SACCO received Sh69 million from KMRC in its Sh2.8 billion debut lending to Primary Mortgage Lenders (PMLs) at 5 percent interest rate, to boost its capital liquidity for onward lending to potential home owners.
However, there lacks clarity on the funding model of the company in order to maintain lending at 5 percent given that the even the government itself access 20-year funding at 13.3 percent rate.
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Other PMLs who received funding from KMRC in that period include KCB Bank which was the largest beneficiary at Sh2.1 billion, while Housing Finance (HF) and Tower Sacco received an allocation of Sh515.0 million and 30.0 million, respectively.
KMRC has since set aside Sh7 billion for lending to PMLs in FY’2021/22 in an aim to achieve its mandate of boosting home ownership rates through issuance of affordable mortgages.
The move by Stima SACCO is likely to spark an increase in the uptake of mortgages in the country which remain constrained due to high property prices and interest rates in a country where income is very low.
Given this, the Kenya mortgage to GDP ratio has continues to lag behind at 2.2 percent as of 2020, compared to countries such as Namibia and South Africa at 18.9 percent and 16.2 percent, respectively.
Despite the low mortgage to GDP ratio, homeownership remains an important aspiration, hence affordable mortgages are essential to increasing homeownership, currently at 21.3 percent compared to Ghana at 47.2 percent and South Africa at 53 percent, thus creating the need for acceleration.
According to the analysts, the low home ownership rate in the country is attributable to several reasons among them the increasing number of Non-Performing Loans (NPLS) in the real estate sector, which increased by 14.8 percent to Sh70.5 billion in the first quarter of the year from Sh61.4 billion recorded in the fourth quarter of 2020 leading to tighter underwriting standards by banks and other lending institutions.
It is also on account of exclusion of self-employed citizens due to lack of the credit information on criteria threshold for mortgage products as well as tough economic times reducing savings and disposable income.
High property costs, and the high initial deposits required to access mortgages are also major factors.
This comes weeks after the country’s National Housing Corporation announced plans to build 2,000 affordable housing units in various parts of Kiambu County in the central region, in addition to also signing a land lease agreement with Konza City that will see the firm develop 5,000 units beginning November 2021.
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According to the corporation, the first batch of the project in Kiambu consisting of 500 units is expected to be delivered in Ruiru by December 2021.
Experts from Cytonn Investment say NHC’s decision to establish low-cost housing projects in the county is mainly driven by various reasons among them improved infrastructure with the areas being served by roads such as Thika Superhighway and Mombasa Road.
There is also increasing housing demand as a result of high population and urbanization growth rates as well as availability of land for development.
The remaining units are expected to be delivered in Thika, Kiambu town, Migaa, and other towns.