Banking on affordable housing to spur mortgage uptake
Effie Otieno, a research assistant at Cytonn Investments explains how Kenya Mortgage Refinance Company (KMRC) supports the affordable housing initiative, through providing secure, long-term funding to mortgage lenders thus increasing the availability and affordability of mortgage loans in Kenya.
Milliam Murigi @millymur1
Kenya Mortgage Refinance Company (KMRC) began lending in September 2020, following approval to operate by the Central Bank of Kenya. What does this mean to the housing industry?
KMRC is expected to promote the growth of the Kenyan mortgage market with a targeted mortgage account of 50,000 homes within five years.
Home ownership has remained relatively low at 21.3 per cent in urban areas and the lending by KMRC will enable potential home buyers access affordable mortgages enabling them acquire homes.
In Kenya, banks are currently the main providers of mortgage financing, but because of liquidity issues these institutions are reluctant to expand their mortgage portfolio. How is KMRC going to change this?
Since KMRC will be lending money to Primary Mortgage Lenders (PMLs) who in turn will be lending the funds to individuals seeking for home financing, this has the potential of increasing mortgage uptake as the facility offers mortgages at relatively affordable rates both to the PMLs and applicants.
Also with the facility providing long term funding to financial institutions, we expect an increase in the number of firms lending funds to mortgage borrowers.
Additionally, this will most likely result in increased competition among various institutions thus the possibility of providing relatively attractive terms and conditions for competitive advantage.
In your opinion, what are some of the benefits and challenges of KMRC?
For benefits, there will be increased home ownership since one of the key objectives of KMRC is to increase home ownership among Kenyans through offering mortgages at affordable rates.
Apart from that, there will be increased liquidity to mortgage lending institutions, something that will spur competition in the mortgage market.
However, given low loan size provided by KMRC, potential homeowners will have few or no options of housing units within the Nairobi Metropolitan Area due to the relatively high property prices and low supply of affordable housing units thus forcing them to focus on housing units within satellite towns, which are affordable.
KMRC is likely to also face challenges raising funds through bonds as a result of competition from government instruments as they are offering much higher lending rates than KMRC’s 5.0 per cent.
In addition, to be able to lend at 5.0 per cent, the green bond will have to be issued at a relatively low rate, which is likely to make it unattractive to investors noting that Acorn’s green bond was issued at 12.3 per cent and attracted 85 per subscription.
Bureaucracy and inefficiencies from state departments because of the prolonged processes in government departments due to high levels of bureaucracy and delays in processes, such as approvals, registration of properties and title deeds are likely to slow down the operations of KMRC.
Countries, such as Saudi Arabia have succeeded in improving the mortgage market through a similar concept, which has resulted in the growth of home ownership.
What are some of the things KMRC might need to borrow from such a country and others with vibrant industires?
KMRC must vigorously raise funds for sustainability. They can do so by approaching foreign investors to increase their pool of funds.
They need to also incorporate short term loans, which most likely will help promote flexibility for those willing to pay back within shorter repayment periods, and with this, the company will be in a position to earn from interests paid from short repayment windows.
Finally, the company needs to increase awareness of its existence to potential home owners through awareness campaigns since most Kenyans aren’t aware of its existence.
Since KMRC started its operations, what are some of the gaps that have been identified ?
The major gap has been that more than three quarters of loans that were submitted by PMLs in the first phase of refinancing did not meet the stringent requirements that have been set by World Bank.
Failure by borrowers to meet mortgage loan eligibility criteria has, therefore, limited uptake.