Kenya’s mortgage providers are making a kill, thanks to the property boom over the past few years.

According to a review report released last month by South Africa-based Centre for Affordable Housing Finance in Africa, the country’s mortgage sector looks bright despite the fact that only a few Kenyans qualify for formal mortgages offered by commercial banks and mortgage firms.

“Suppliers of housing finance across the board have recorded healthy profits over the past couple of years because of the upward turn in the property market,” says the report.

It did not, however, give any figures. It adds: “The country is very well positioned to support the future growth of its mortgage market by tapping into its capital market.”

The impressive growth of Kenya’s mortgage market has been largely aided by the property boom in the home ownership sector, which the report says has led to rapid price increases.

“A highly speculative property market and high demand for housing has driven Kenya’s residential property price inflation steadily up over the past eight years,” it says, noting that even with lower economic growth in the early part of the decade as well as the aftershocks of the post-election violence, the residential property sector has performed well.

Hass Consult’s Quarterly Property Index revealed that property prices rose by over 100 per cent nationally and in the capital city Nairobi and by between 30 and 50 per cent in other smaller urban areas from 2001.

“Indicators within the construction industry likewise point to a construction boom,” the Centre for Affordable Housing Finance in Africa report says, adding that in Nairobi, the city council approved Sh19 billion worth of buildings for the first three months of 2009, up from Sh12 billion in 2008.

The Kenyan diaspora has also contributed to the boom, being responsible for almost 35 per cent of the mortgage loan volume as non-owner occupied borrowers.

Kenya’s mortgage market, according to the study, is the largest in the East African region and is likely the third largest in sub-Saharan Africa after South Africa and Namibia, with mortgage assets equivalent to 2.5 per cent of the country’s GDP.

Kenya Commercial Bank, for example, is the East African region’s largest mortgage financier.

A few months ago, the bank launched its mortgage products in Uganda, where it has 14 branches (the bank also has branches in Tanzania and Rwanda).

Compared to Kenya, the Ugandan mortgage market is relatively underdeveloped and developers are rushing to meet the rising demand for housing, a move that has created a huge financing opportunity for lenders like KCB.

A recent survey by the Bank of Uganda showed that residential mortgages were priced at an average of 22.02 per cent while commercial mortgages attracted 21.81 per cent annual interest.

Another survey conducted jointly by the Central Bank of Kenya and the World Bank revealed that the mortgage debt in Uganda is at only one per cent of the country’s GDP, which is low compared to Kenya’s 2.5 per cent and South Africa’s 33 per cent

As the Kenyan economy improves, the mortgage market is projected to maintain an annual growth of 30–40 per cent.

But the report also points out that reform is urgently needed in the land administration system, specifically targeting laws dealing with collateral, which make mortgage lending unattractive to lenders.

Generally, it notes, the system is considered inefficient, inaccurate, and prone to delays and corruption.

In 2009, for example, there was large-scale revocation of illegally provided deeds that shook confidence in the land title issuing system and affected the appetite for collateralisation by banks.

At the same time, the system is considered costly and priced out of reach of most people (obtaining a title can cost up to Sh28,000).

Kenya also needs to reform laws dealing with money laundering, the report adds, saying that anecdotal evidence suggests that the property boom in urban centres has been partly fuelled by laundered Somali pirates’ money.

It, however, acknowledges that there have been some reforms.

For instance, it notes, 2009 saw the adoption of the national land policy, “a positive step in resolving the protracted question of the reliability, accuracy, and legitimacy of the land administration system in the country”.