Posted  Wednesday, August 24  2011 at  18:00

Kenya’s mortgage providers are betting on the devolved system of government under the new Constitution to grow their portfolios.

Counties are expected to be the country’s economic growth nerves, creating jobs and employing millions of Kenyans, who will need to be housed.

Already, a number of developers are planning how to set up shop in towns that were traditionally not considered “real estate hubs”.

“We expect the counties to be the next areas of mortgage development. As we begin to decentralise resources to the 47 counties, we see 47 cities that will compete among themselves in terms of development and employ a workforce that will require housing.

“For us at KCB, that is our next big area of focus in mortgage development,” said Kenya Commercial Bank group mortgage director Joram Kiarie.

According to Mr Kiarie, the mortgage market continues to develop not only in Kenya but also across the East African region because population is growing and there is a high rate of rural-urban migration to capital cities as well other major urban centres.

Nairobi continues to be a business hub for many companies in and outside East Africa, a fact that has contributed to increased demand for housing.

However, as the demand increases every year, many would-be homeowners are put off by the high costs of purchase.

Kenya is currently ranked as one of the most expensive real estate markets, with housing units costing much more than in developed cities such as Berlin in Germany, Cape Town in South Africa, and even some parts of the United States.

This is one of the reasons why the annual housing shortfall is estimated to be between 150,000 and 200,000 units.

The situation is not any better in Uganda, where the annual and accumulated deficit is 108,000 and 600,000 units, respectively.

Rwanda, on the other hand, has recorded a deficit of 20,000 units annually.

“This is instructive of the huge gap existing in the region’s housing and property sector. Therein also lies the opportunity to provide affordable housing to the region’s growing middle-class population, including many others who can neither afford to buy nor construct a home,” said Mr Kiarie.

Kenya’s mortgage market has more than tripled in the past five years, having grown from Sh19 billion in 2006 to just over Sh61 billion by May 2010, according to a Central Bank of Kenya/World Bank report.

This translates into an annual average growth of 34 per cent, indicating an exponential increase in mortgage loans.

The number of new loans has also been rapidly increasing. In 2006, new loans were approximately 1,278.

By 2009, the new loan portfolio had grown to over 6,000. However, the report says that the mortgage market is still relatively small by international standards, with only 13,803 loans.

“While the growth rate in mortgage loans has been rapid at just under 50 per cent since 2006 and has been growing steadily at 14 per cent annually, the loan portfolio remains small,” says the report.

In terms of mortgage debt to gross domestic product, Kenya’s is low by international standards, but is on par with neighbouring countries.

Kenya’s mortgage debt compared to its GDP is better than that of its East African neighbours, Tanzania and Uganda, at just under 2.5 per cent, but is not as developed as its developing country peers such as India (six per cent) and Colombia (seven per cent).

(The mortgage debt to GDP ratio is around 50 per cent in Europe and over 70 per cent in the US, indicating that there is significant room to grow.)

KCB recently received a Sh9.6 billion loan from the International Finance Corporation (IFC), part of which will go towards mortgage lending with a focus on the bank’s subsidiary mortgage businesses in Tanzania, Rwanda, and Uganda.

“The Sh9.6 billion loan we got from IFC is to support regional business growth. We are focusing on financing small and medium enterprise (SMEs) and long-term mortgages. We are already inviting developers to come forward and utilise the finances for developing housing projects. We don’t want the funds to lie idle,” Mr Kiarie said last week, adding that the bank was ready to advise developers on how to mitigate construction risks.

He said high inflation has not slowed down the uptake of home loans in Kenya.

“Despite eroded disposable income as a result of inflation, the demand for mortgage is clearly still there. We only need to adjust to what we can afford,” he said.