Mortgage lenders opened 2,255 new accounts in the 13 months to June, a relatively slow pace of growth that reveals Kenyans’ aversion to borrowing home loans.
The trend shows that most Kenyans opt for cash payments, savings, personal loans and Sacco credit to finance home purchases.
Fresh data by the Central Bank of Kenya shows that mortgage loan accounts increased by 14.98 per cent to reach 17,304 at the end of June compared to 15,049 in May 2010. This pushed the outstanding aggregate value up by 28 per cent to stand at Sh78.4 billion.
The Housing Ministry estimates that as many as 30,000 home sales may have been concluded in the period, indicating Kenyans’ low preference for mortgage loans as a means of buying homes.
Banking executives said home buyers generally prefer cash payments by instalments and personal loans as they try to avoid long debt repayment periods.
Joram Kiarie, the director in charge of mortgage business at KCB, said home buyers who pay construction costs in instalments are likely to have paid up to 60 per cent of the value of the house by the time construction is complete, reducing the need for buyers to seek mortgage loans.
“The off-plan purchase option allows buyers to pay for the homes in several instalments over the term of the construction, meaning that they only need a small loan amount when the home is ready for occupation,” said Mr Kiarie. He said the outstanding mortgage accounts on KCB’s loan book now exceeded 5,000 but noted that household savings were playing a ‘big part’ in financing home acquisitions.
In the period ending June, credit to the real estate sector surged to Sh118 billion, from Sh81 billion—indicating a strong appetite for construction loans by estate developers.
For KCB, the total loans book to the private sector was split 50;50 between mortgage and construction loans in June, according to Mr Kiarie.
Frank Ireri, the managing director at Housing Finance said buyers in the high end of the housing market were highly unlikely to depend on mortgage financing to purchase homes in Kenya.
“From our experience, it is the home buyers in the middle income segment who are relying on mortgage financing to purchase homes but the wealthy are likely to pay in cash,” said Mr Ireri.
That would perhaps best explain the under-development of the mortgage market in Kenya, because the focus for most developers has for long been high-income earners who offered investors the highest returns.
The development of high-end homes has seen the re-development of previously posh estates and the opening of farmlands previously under coffee in Kiambu, North of Nairobi. Latest shifts in the housing market however indicate that new projects entering the market are targeting middle income earners, most of which are gated communities further from the inner city estates.
“The huge uptake of construction loans means that developers have borrowed to build new homes and it will be some months before this is translated into mortgage for the home buyers” added Mr Ireri.
The real estate industry has led other sectors of the economy in borrowing from commercial banks, tripling over the last two years alone- as developers borrowed heavily to invest in lucrative homes market.
But a survey conducted by the World Bank and CBK in October last year revealed that the high interest rates in the banking sector, then at 13.5 per cent, was a key factor that had hampered the growth of the mortgage market in Kenya.
CBK estimated that KCB and HF jointly controlled more than two-thirds of the industry’s mortgage debt but new entrants like Equity, Family Bank and the National Bank are likely to inform how the players will share out the mortgage market in the next sector reviews.