Equity Bank is riding on Mabati Rolling Mills (MRM) low-cost housing products to introduce home loans for low-income earners.
The bank will offer workers earning as little as Sh20, 000 mortgages for ready-made steel houses that will retail at about Sh200, 000 for a four-roomed house.
Equity says it will provide minimum home loans of Sh48, 000, which is much lower than the Sh6.6 million industry average mortgage rate that has locked out the poor from property financing.
The deal will not only help the manufacturer of roofing materials to tap the lucrative real estate market but will allow Equity Bank to deploy its bottom of the pyramid business model in the homes financing market.
“Equity Bank’s entry into the micro- mortgage class is expected to radically transform mortgage financing while addressing low cost housing units’ deficit,” said James Mwangi, the CEO of the bank, in a statement.
The two firms are banking on pricing to penetrate the lower-end of the market that investors have neglected as they target the middle and upper segments.
The houses are made of steel and iron sheets but buyers have the option of using bricks or wood on the walls. MRM has opened satellite offices in Kisumu, Mombasa and Eldoret to spread the housing concept outside Nairobi.
The success of the plan is anchored on the review of the building code to classify structures built from materials other than brick and mortar as permanent —paving the way for use of the panels to build new homes.
Property developers say rigid building laws that do not allow the use of alternative materials is partly to blame for the rapid rise in costs, locking out the poor from home ownership.
Kenya’s annual demand for houses is estimated at 200,000 units whereas the market can only supply 30,000 units, leaving a shortfall of 120,000 per year, especially in the lower sections of the market—which has resulted in proliferation of slums in towns.
“We did a pilot whose samples we donated to IDPs and now we want to sell this model to the mass market,” Kaushik Shah Safal, the group’s CEO for Horn of Africa told the Business Daily earlier.
Mabati Rolling Mills is a subsidiary of the Safal Group, manufacturer of flat and long steel products.
So far, Equity Bank has focused its mortgage department on the mid-end of the market where it is battling with established lenders such as KCB Group, Housing Finance and CFC Stanbic.
In the past decade, Equity went for low-end borrowers who traditionally have been considered a high risk venture and grew to become Kenya’s biggest bank by customer base and the most profitable lender in the country.
The bank is now keen to employ this model in the home loans market in a move set to grow Kenya’s mortgage accounts and take the product to rank-and-file workers.
The Central Bank of Kenya (CBK) says the country has about 15,500 mortgage holders who have been lent about Sh140 billion with the average of loan being Sh6.6 billion—which is beyond the reach of most households.
“This may be explained by the undeveloped medium-to-low income housing market or the latent demand in the high-income housing segment hat is yet to be met,” says CBK.
Home loans finance is emerging as a profit driver for Kenya’s bankers as red-hot real estate market attracts investors who previously put their money in bonds and equities market.
As a result, the market has witnessed new entrants such as Bank of Africa, Family Bank and Equity that are looking to challenge the dominance of market leaders such as KCB Group, Housing Finance and CFC Stanbic.
Rapid urbanisation, population growth and expansion of the middle class remain the main drivers of Kenya’s property market that is riding on nearly three decades of under investment in the mid-tier segment.