Housing has been one of Kenya’s fastest growing sectors. In the past decade alone, the value of approved building plans have risen from Kshs10 billion in 2001 to Kshs190 billion in 2012. Forty per cent of the approved plans were for residential developments

The country has in the past decade experienced a construction boom only similar to the Government-driven initiative of the 1960s and 1970s, which saw modern housing coming up in all major towns

Despite the property boom, supply of houses is still way below demand. Annual demand for houses is in the range of 500,000 units. But the World Bank puts the annual supply at around 60,000. This massive housing shortage has led to house prices increasing year on year and this trend is expected to continue into the near future.

Mortgage interest rates still remain high, with the Central Bank of Kenya recently stating that the average mortgage in the country is Kshs6.6 million, ($75,862) thus demanding a monthly repayment of about Kshs90,000 ($1,034) for 20 years. While mortgage loan accounts have doubled in the past five years, the total number is still low at 16,000 accounts in a population of 40 million.

Although Kenya has 43 commercial banks, 25 of them with varying mortgage portfolios, it has only one mortgage finance company Housing Finance. The main providers of mortgages, other than Housing Finance, are Kenya Commercial Bank (KCB), Standard Chartered Bank, Barclays Bank and Stanbic Bank.

To try and increase the uptake of mortgages, the Government in 2009 made amendments to the Retirement Benefits Act to introduce pension backed mortgages. This allowed potential home-owners to use up to 60 per cent of their pension contributions to secure a mortgage. The new policy hasn’t yet led to a surge in mortgage uptake as expected, mainly because of low incomes compared to the rising property prices.

Another factor is closing costs which are still too high. Fees charged on mortgages including legal fees, valuation, arrangement fees, stamp duty (at four per cent for urban land and two per cent for agricultural land) and mortgage protection policy insurance account for around 10 per cent of the mortgage cost. Taking our earlier figure for mortgage loan of Kshs6.6 million, closing costs are Kshs660,000 ($7,586).

For now, most Kenyans finance their homes through construction loans. Inflows from the Diaspora, savings and credit cooperatives (Saccos) and housing cooperatives are popular sources of finance. Kenya has a strong microfinance sector with 34 institutions with more than a million active borrowers combined. A number of pioneering Saccos and non-governmental institutions are providing housing finance to their members. They include Jamii Bora, the National Cooperative Housing Union (NACHU) and Saccos through their investment and housing subsidiaries.

The rise of gated communities

ConstructionSaccos are also becoming key players in the emerging trend of gated communities and mini cities. These are innovative and futuristic multibillion-shilling projects with residential, commercial (offices, shops) and leisure facilities in the same location, such as golf courses, club houses with swimming pools, game rooms, sauna, gym and spa.

Thika Greens Golf Estate, Buffalo Hills in Thika, Fourways Junction, Tatu City, Migaa Golf Estate, Edenville Estate on the outskirts of Nairobi, New Nyali and English Point Marina in Mombasa and Mukima Ridge and Mount Kenya and Wildlife Estate in Laikipia are examples of gated communities under development.

A key element of all these gated communities is controlled development where plot owners are restricted in terms of house design and usually sign a contract to ensure there are no extensions to approved buildings. Some like Mukima Ridge are seeking to attract expatriates, tourists and wealthy Kenyans who want exclusive holiday homes. Mukima Ridge contains country-style ranch houses all nestling in a ridge on the flanks of the picturesque Mount Kenya. Each of the 10 houses occupies 13-15 acres.

On the other hand, the Mount Kenya Wildlife Estate at Ol Pejeta is set in 1,000 acres adjoining the 90,000-acre Ol Pejeta ranch. This development will comprise homes clustered around water holes and salt licks with unhindered views of Mount Kenya, Aberdares and Loldaiga Hills. These two estates are an example of the level of creativity that realtors are employing to woo customers.

Gated communities are popular because they reduce the cost of home ownership.

Saccos are helping people to pool their resources to buy land in bulk, subdivide it and sell to members at a subsidised cost, service the plots (providing water, electricity, sewer, roads etc) and once the homes are built, they collectively share the costs of managing the estate (security, garbage collection, etc). Younger people who plan to retire in cities, unlike their parents who retired in their rural homes, are driving this trend.

The Government has formulated the Housing Bill, set to provide the legislative framework for effective coordination, regulation, guidance, facilitation, training and monitoring of the housing and human settlements development.

The proposed law is expected to spur housing and human settlements development and ensure that the demand for about 500,000 housing units per year is met by 2030.

There is more private sector involvement contemplated in the law. The Kenya Housing Authority, when established, will monitor and evaluate the operations of the housing sector; drive research into housing making such research more authoritative and drive provision of social housing. The Bill proposes that five per cent of the annual budget be allocated to housing. This will make the Government a key player in the sector.

The proposed law also makes provision for a guaranteed mortgage scheme that protects lenders against risks in housing and make lending less risky. It recognises newer and cheaper technology used in construction which will bring down the cost of housing. From a lending perspective they can be considered as chattel mortgages.

Currently a mortgage can only be secured by real property (immovable). The Housing Bill allows lenders to take out a chattel mortgage – a loan secured by chattel (movable personal property like building panels) which is a simpler form of security. The law, therefore, will make security easier and cheaper once enacted.