By John Gachiri,  (email the author)

Posted  Wednesday, October 5  2011 at  21:38

FILE | NATION Kenya Commercial Bank building on Moi Avenue, Nairobi.

FILE | NATION Kenya Commercial Bank building on Moi Avenue, Nairobi. The bank has announced it will invest the entire Sh9.6bn it recently received from IFC in financing mortgages and SMEs across East Africa.

KCB has signed three multi-billion shilling mortgage projects with Tanzania’s state housing company, marking a formal entry into the country’s homes market.

The lender said on Wednesday it will spend Sh3 billion on three real estate developments in a partnership with the National Housing Corporation (NHCTZ), which owns most of Tanzania’s prime land.

The money is to be invested in three chunks, the first Sh700 million ($7 million) was deployed in August and two others of between Sh800 million ($8 million) and Sh1 billion ($10 million) each will be released in phases.

It is part of a Sh9.6 billion IFC loan that KCB secured in late August.

“About half this amount will be channelled into our mortgage business here in Kenya and the region which is expected to expand by 24 per cent by the end of this year,” said KCB director of mortgages Joram Kiarie.

The investment — through KCB’s mortgage subsidiary S&L (Tanzania) — will see KCB take up three out of 10 housing projects planned by the NHCTZ.

NHCTZ strategic plan (2010-2015) is to construct 15,000 units by 2015.

KCB chose to sign a partnership with the state-owned property developer as NHC Tanzanian owns most of the country’s prime property.

KCB has said it will leverage on the partnership to enter into the retail mortgage market.

This is a similar approach that the bank used when it entered the South Sudan housing market through a $452 million deal to build 1,750 houses for civil servants in 2008.

Francis Mwangi, a research analyst at Standard Investment Bank, said the approach would facilitate KCB’s faster entry into the regional mortgage market.

The lender has set aside Sh4.8 billion for the regional real estate sector. The IFC loan is dollar denominated.
Since the signing in early September when the exchange rate was 93 Kenya shillings to the dollar the unit has weakened by 10 per cent and is trading at about 102 to the greenback.

Mr Kiarie, however, said this would not have an impact on the bank as the lender has revenue streams that are in dollars and can leverage on its treasury department.

George Bodo, a research analyst at Genghis Capital, said that the construction industry in the region is robust as governments are unlocking potential through massive ongoing and planned infrastructure projects.

“It will pay off in the medium term because the highways and roads being built will drive up property prices,” said Mr Bodo. Tanzania’s NHC is also planning to develop the infrastructure that would pull in investors into the sector.

“In its other role of facilitating the provision of housing and other buildings, the NHC endeavours to become a ‘master developer’. It will acquire parcels of land, plan and service them,” says NHCTZ’s 2011-2015 strategic plan.

The state-owned firm held property valued at Sh88.5 billion (Tsh1.465 trillion) as at end of last year, and owns 16,440 buildings among them 6,840 commercial structures and 9,600 residential apartments.

While Tanzania is seen as having a tough investment climate, NHCTZ’s strategic plan it to court money from foreigners. A growing middle class and a young population means a growing demand into the future.

KCB’s regional footprint with branches in four of the five countries that make East Africa region give it advantage of easy roll-out of products.

Mr Mwangi said that the biggest problem real estate developers face in the region is the lack of strong laws to protect investors. However, the landscape is changing as countries begin to revamp laws that will make it easier for banks to sell property of defaulters.